Question

TABLE 3.3 Pro Forma Financial Statements for R&E Supplies,Inc., December 31, 2018 ($ thousands)

Income Statement
	2018	Comments
Net sales	$25,766	25% increase
Cost of goods sold	22,159	86% of sales
Gross profit	3,607
Expenses:
 General, selling, and administrative expenses	3,092	12% of sales
 Net interest expense	90	Initially constant
Earnings before tax	425
Tax	191	45% tax rate
Earnings after tax	$ 234
Balance Sheet
Assets
Current assets:
 Cash and securities	$ 1,271	18 days sales
 Accounts receivable	3,600	51-day collection period
 Inventories	2,462	9 times turnover
 Prepaid expenses	20	Rough estimate
  Total current assets	7,353
Net fixed assets	280	See text discussion
Total assets	$ 7,633
Liabilities and Owners’ Equity
Current liabilities:
 Bank loan	$ 0
 Accounts payable	3,582	59-day payables period
 Current portion of long-term debt	100	See text discussion
 Accrued wages	22	Rough estimate
  Total current liabilities	3,704
Long-term debt	660
Common stock	150
Retained earnings	1,697	See text discussion
Total liabilities and owners’ equity	$ 6,211
External funding required	$ 1,422

Table 3.3 shows the December 31, 2018 pro forma balance sheetand income statements for R&E Supplies, Inc. The pro-formabalance sheet shows that R&E Supplies will need externalfunding from the bank of $1.4 million. However, they show almost$1.3 million in cash and short-term securities. Why are theytalking to the bank for such a large amount when they have most ofthis sum in their cash account?