e 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

 

Consolidated Balance Sheets – USD ($) $ in Millions Dec. 31, 2015 Dec. 31, 2016 1. Evaluation of the Trend
Current assets: % to Total Change
Cash and cash equivalents 3.46% 1.80% -1.66% Decreased to almost half
Accounts receivable, less allowances of $131 and $57, respectively 2.11% 3.23% 1.12% Slight increase in %
Restricted cash 31.18% 0.00% -31.18% Made NIL in 2016
Prepaid expenses 0.37% 0.30% -0.07% Almost same
Income taxes and other current assets 0.30% 0.37% 0.08% Almost same
Total current assets 37.41% 5.71% -31.70% Major decrease due to decrease in cash&restricted cash
Property, plant and equipment, net 31.36% 51.36% 20.01% Increase by more than half
Goodwill 26.46% 33.34% 6.89% increase by a quarter of 2015 figure
Other intangibles, net 4.22% 9.18% 4.95% Doubled
Other assets 0.56% 0.41% -0.15% Slight decrease
Total assets 100.00% 100.00%
Current liabilities:
Long-term debt due within one year 1.42% 1.25% -0.17% Slight decrease
Accounts payable 1.72% 2.41% 0.68% Increased % to total
Advanced billings 0.59% 1.04% 0.45% Doubled
Accrued other taxes 0.32% 0.46% 0.14% Increased % to total
Accrued interest 1.49% 1.51% 0.02% Very small Increase
Pension and other postretirement benefits 0.12% 0.08% -0.04% Very small decrease
Other current liabilities 1.33% 1.68% 0.36% Slight increase in %
Total current liabilities 6.99% 8.42% 1.43% Slight increase in %
Deferred income taxes 9.84% 8.67% -1.17% Slight decrease
Pension and other postretirement benefits 4.29% 5.52% 1.23% Increased % to total
Other liabilities 0.89% 1.28% 0.40% Increased % to total
Long-term debt 57.26% 60.52% 3.27% 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) 1.10% 1.03% -0.07% Slight decrease
Additional paid-in capital 22.28% 18.21% -4.07% decreased % to total
Accumulated deficit -0.32% -1.59% -1.26% decreased % to total
Accumulated other comprehensive loss, net of tax -1.30% -1.33% -0.03% decreased % to total
Treasury common stock -1.03% -0.74% 0.29% Increased % to total
Total equity 20.73% 15.58% -5.15% decreased % to total
Total liabilities and equity 100.00% 100.00%
1. Analysing the % to the total,in both the years, 2015 & 2016
Assets:
Negative trend is observed with cash
PP&E has increased by more than half
Goodwill has increased over a quarter, of the previous year
Other intangibles have almost doubled.
Liabilities:
Increase in % of   almost all liabilities including trade& long-term liabilities
Equity:
All components of owners’equity has show decreasing %s, combined with increase % in treasury stock repurchase.
2.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,eating into profits & affecting repaying capacity.
3. Financial informations like the above-discussed current & quick ratios & debt/equity ratios,profitability 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 ,market for its products,presence of satisfied and loyal employees ,good work culture and environment,past & present clients,customers & vendors and their continued association with the company–all count for both the potential investors & the lenders
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