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%
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%
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


Answer 1:

A common-size balance sheet evaluates the trends and changes that occur over period of time for an organisation. It also facilitates the comparison of a financial item in terms of its line items. The evaluation of current assets of the current organisation from common-size balance sheet suggests that the short term liquidity of the company has gone done in the year 2016 as opposed to 2015. This specifies that company has invested in long term assets over short term assets which defines that company has set up long term goals and to achieve them they are invested in their capital assets such as plant and machinery. It can be understood from the analysis of the balance sheet that restricted cash has been utilized by the company to enhance its working capacity which is good signs. The evaluation of liabilities section reflects that company has increased its short term obligations from previous years and it has to manage funds to pay them on short term basis. Long term debts of the company have increased since it has borrowed funds to set up the plant and machinery. It would help the company in enhancing its profitability if the progress of the company shows upwards trends. The equity capital structure states that company has paid off its equity holders some part of their share. The overall conclusion of long term liabilities section and equity section reflects that company is borrowing funds from lenders ahead of its owners.

Answer 2

The organisation has shifted its attention to external borrowings in the form of long term debt along with using the short term liabilities to some extent. This means that organisation is focusing on enhancing the profitability of the investors by owing funds from outside and enhancing its net income. Investors and creditors of the company should study the financial aspects of the company and their ability to pay off debts. The fact is that company has enhanced its creditors may it be short term or long term to increase its overall turnover which enables them to earn higher profits. Investors should understand that company is increasing its fixed expenses in the form of interest and thus, optimal profits would only help the company enhance its profitability for the investors.

Answer 3

There are various other financial and non-financial information that investors and creditors should analyse while making their investment and lending decisions. The company’s profitability depends on the sales that they generate from their market and thus, overall turnover and its margins should also be studied by the investors while making their decisions. Creditors should also need to check whether the company has earning substantial profits to pay off its financial charges since only higher profits can offset these charges. The increasing or decreasing market share of the company in its market, upcoming product trends, and goodwill of the company all should be studied in line while making their decisions since these are very significant numbers. The vision of company should also be studied while making your decision since your purpose of investment should match with the company vision in order to earn the desired results that you want from that investment.

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