| 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? |
(Solved Homework): Consolidated Balance Sheets – USD ($) $ in Millions…
Expert Answer
1.. Evaluate the asset, liability, and equity structure, looking for trends and changes in the common-size balance sheet.
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(Solved Homework): Consolidated Balance Sheets – USD ($) $ in Millions…
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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
