Answered Essay: Consolidated Balance Sheets – USD ($) $ in Millions

Consolidated Balance Sheets – USD ($) $ in Millions Dec. 31, 2016 Dec. 31, 2015 Dec. 31, 2016 Dec. 31, 2015 Change
Current assets:
Cash and cash equivalents $ 522 $ 936 1.80% 3.46% -1.66%
Accounts receivable, less allowances of $131 and $57, respectively 938 571 3.23% 2.11% 1.12%
Restricted cash 8,444 0.00% 31.18% -31.18%
Prepaid expenses 88 100 0.30% 0.37% -0.07%
Income taxes and other current assets 108 80 0.37% 0.30% 0.08%
Total current assets 1,656 10,131 5.71% 37.41% -31.70%
Property, plant and equipment, net 14,902 8,493 51.36% 31.36% 20.01%
Goodwill 9,674 7,166 33.34% 26.46% 6.89%
Other intangibles, net 2,662 1,143 9.18% 4.22% 4.95%
Other assets 119 151 0.41% 0.56% -0.15%
Total assets 29,013 27,084 100.00% 100.00% 0.00%
Current liabilities: 0.00% 0.00% 0.00%
Long-term debt due within one year 363 384 1.25% 1.42% -0.17%
Accounts payable 698 467 2.41% 1.72% 0.68%
Advanced billings 301 160 1.04% 0.59% 0.45%
Accrued other taxes 134 87 0.46% 0.32% 0.14%
Accrued interest 437 403 1.51% 1.49% 0.02%
Pension and other postretirement benefits 23 33 0.08% 0.12% -0.04%
Other current liabilities 488 359 1.68% 1.33% 0.36%
Total current liabilities 2,444 1,893 8.42% 6.99% 1.43%
Deferred income taxes 2,516 2,666 8.67% 9.84% -1.17%
Pension and other postretirement benefits 1,602 1,163 5.52% 4.29% 1.23%
Other liabilities 372 240 1.28% 0.89% 0.40%
Long-term debt 17,560 15,508 60.52% 57.26% 3.27%
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) 298 298 1.03% 1.10% -0.07%
Additional paid-in capital 5,283 6,034 18.21% 22.28% -4.07%
Accumulated deficit (460) (87) -1.59% -0.32% -1.26%
Accumulated other comprehensive loss, net of tax (387) (353) -1.33% -1.30% -0.03%
Treasury common stock (215) (278) -0.74% -1.03% 0.29%
Total equity 4,519 5,614 15.58% 20.73% -5.15%
Total liabilities and equity $ 29,013 $ 27,084 100.00% 100.00% 0.00%
Questions
1. Evaluate the asset, liability, and equity structure, looking for trends and changes in the common-size balance sheet.
2. What concerns would investors and creditors have based only on this information?
3. What additional financial and non-financial information would investors and creditors need in order to make an investment and lending decisions?

Expert Answer

 

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

Asset:

Total current asset has reduced from 37.41% of total asset in 2015 to only 5.71% in 2016

Total current asset on December 31, 2016 is only $1,656 million compared to $10,131 million one year ago.

Current Ratio on December 2016 is (1656/2444)=0.68 compared to (10131/1893)= 5.35 one year ago

Liquidity has reduced significantly over last one year and it is cause for concern. Current liquidity ratio is below the acceptable level

Current assets have been invested in properties, plant and equipments .These are increased from31.36% of total assets on December 31, 2015 to 51.36% on December 31, 2016

Liabilities:

Total current liabilities has increased from 6.99% of total assets in 2015 to 8.42% in 2016

Long term debt has increased from 57.26% of total assets in 2015 to 60.52% of total assets in 2016

Equity structure:

Total equity has decreased from$5614 million in 2015 to $4519 million in 2016

Debt equity ratio on December 31, 2016 is(17560/4519)=3.89

Debt equity ratio on December 31, 2015 was(15508/5614)=2.76

Debt equity ratio is very high. This indicates there may be difficulty in servicing debts if return on capital employed is decreased

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

Based on the above information, the concern of investors and creditors will be liquitidy and solvency of the company.

The short term creditors will have concern of getting their due in time due to low liquidity.

The long term creditors and investors will have concern about risk of their investment. The company may not be able to meet its obligation towards its creditors and investors, Their principle amount of investments are in risk.

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

Investors and creditors need information related to earnings and past history of meeting obligations of the company.

Informations required:

  • Profitability-Operating profit margin,Return on assets , return on equity
  • Interest coverage ratio
  • Efficiency of operation: Asset turnover, inventory turnover, Account receivable turnover, Average number of days of accounts payable
  • Market related information like dividend yield, P/E ratio, PEG ratio
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