Answered Essay: Complete the following assignment for Frontier Communications Corporation (FTR) 2 FTR HW.docxPreview the documentView in a new window

Complete the following assignment for Frontier Communications Corporation (FTR) 2 FTR HW.docxPreview the documentView in a new window

1.Locate the Company’s Annual Report (Form 10-K) on their website or http://www.sec.gov/edgar.

2.Create a common-size balance sheet in Excel showing data from the 2016 Form 10-K (all percentages must be expressed with at least 2 decimal places).

3.Evaluate the asset, liability, and equity structure, looking for trends and changes in the common-size balance sheet.

4.What concerns would investors and creditors have based only on this information?

5.What additional financial and non-financial information would investors and creditors need in order to make an investment and lending decisions?

Helpful hints:

Go to http://www.sec.gov/edgar/searchedgar/companysearch.html (Links to an external site.)Links to an external site.

Search for Company

Find 10-K

Click on Interactive Data

Click on Financial Statements

Click on “View Excel Document” below the Company name

Click on tab and print each of the financial statements listed above

Use Merrill Lynch’s “How to Read a Financial Report” to help with definitions

Expert Answer

 

Consolidated Balance Sheets – USD ($) $ in Millions Dec. 31, 2016 % to Total Dec. 31, 2015 % to Total Evaluation–Trend analysis
Current assets:
Cash and cash equivalents 522 1.80% 936 3.46% Decreased to almost half
Accounts receivable, less allowances of $131 and $57, respectively 938 3.23% 571 2.11% Slight increase in %
Restricted cash 0.00% 8,444 31.18% Made NIL in 2016
Prepaid expenses 88 0.30% 100 0.37% Almost same
Income taxes and other current assets 108 0.37% 80 0.30% Almost same
Total current assets 1,656 5.71% 10,131 37.41% Major decrease due to decrease in cash&restricted cash
Property, plant and equipment, net 14,902 51.36% 8,493 31.36% Increase by more than half
Goodwill 9,674 33.34% 7,166 26.46% increase by a quarter of 2015 figure
Other intangibles, net 2,662 9.18% 1,143 4.22% Doubled
Other assets 119 0.41% 151 0.56% Slight decrease
Total assets 29,013 100.00% 27,084 100.00%
Current liabilities:
Long-term debt due within one year 363 1.25% 384 1.42% Slight decrease
Accounts payable 698 2.41% 467 1.72% Increased % to total
Advanced billings 301 1.04% 160 0.59% Doubled
Accrued other taxes 134 0.46% 87 0.32% Increased % to total
Accrued interest 437 1.51% 403 1.49% Very small Increase
Pension and other postretirement benefits 23 0.08% 33 0.12% Very small decrease
Other current liabilities 488 1.68% 359 1.33% Slight increase in %
Total current liabilities 2,444 8.42% 1,893 6.99% Slight increase in %
Deferred income taxes 2,516 8.67% 2,666 9.84% Slight decrease
Pension and other postretirement benefits 1,602 5.52% 1,163 4.29% Increased % to total
Other liabilities 372 1.28% 240 0.89% Increased % to total
Long-term debt 17,560 60.52% 15,508 57.26% Increased % to total
Equity:
Preferred stock, $0.01 par value (50,000 authorized shares, 11.125%, Series A, 19,250 shares issued and outstanding)
Common stock, $0.25 par value (1,750,000 authorized shares, 1,192,986 issued, and 1,172,553 and 1,168,200 outstanding, at December 31, 2016 and 2015, respectively) 298 1.03% 298 1.10% Slight decrease
Additional paid-in capital 5,283 18.21% 6,034 22.28% decreased % to total
Accumulated deficit (460) -1.59% (87) -0.32% decreased % to total
Accumulated other comprehensive loss, net of tax (387) -1.33% (353) -1.30% decreased % to total
Treasury common stock (215) -0.74% (278) -1.03% Increased % to total
Total equity 4,519 15.58% 5,614 20.73% decreased % to total
Total liabilities and equity 29013 100.00% 27084 100.00%
4.Concerns, investors and creditors will have have based only on this information
It is of concern that
cash is going down(current ratio or liquidity will get affected)
& investments in PPE,goodwill &other intangible assets are increasing–resulting in fixed asset turnover going down
On the liability side,
debt has increased while total equity has decreased , giving a higher debt-equity ratio meaning high interest expenses
5. Financial informations like the above-discussed current & quick ratios & debt/equity ratios are required by the investors and lenders for assessing the repaying capacity as well as the going-concern nature of the company
Non-financial informations like the goodwill or reputation earned by the company ,presence of satisfied and loyal employees ,good work culture and environment,past & present clints,customers & vendors and their continued association with the company–all count for both the potential investors & the lenders
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