Restricted cash and solvency ratios
Safeguard Scientifics, Inc. reported the following in its 2008 financial statements.
Note 7: Long-Term Debt.
The credit facility required the company to maintain cash collateral equal to the company”s borrowings (amounts in thousands).
|
Cash held in escrow—current |
$ 6,433 |
|
Cash held in escrow—long-term |
501 |
|
Total Assets |
$232,402 |
REQUIRED:
a. Why would a potential investor or creditor want to know about restrictions on cash?
b. Assume that the loans under the credit facility are expected to remain outstanding for two years. Should the restricted cash be disclosed as current or noncurrent? Discuss.
c. How might the disclosure of such a restriction affect the calculation of working capital, the current ratio, and the quick ratio?