Question

Company 1

Annual Data 1 Millions of US $ except per share data 2018-12-31 2017-12-31 2016-12-31 Cash On Hand $2,745 $2,079 $2,880 $1,336 $1,034 $29,913 $88,568 $1,039 $127,836 $9,787 $227,230 Notes And Loans Receivable Inventory Other Current Assets Total Current Assets Property, Plant, And Equipment Long-Term Investments Goodwill And Intangible Assets Other Long-Term Assets Total Long-Term Assets Total Assets Total Current Liabilities Long Term Debt Other Non-Current Liabilities Total Long Term Liabilities Total Liabilities Common Stock Net Retained Earnings (Accumulated Deficit) Comprehensive Income Other Share Holders Equity Share Holder Equity Total Liabilities And Share Holders Equity $1,202 $882 $26,395 $84,751 $1,110 $122,775 $9,149 $34,636 $89,286 $671 $128,519 $11,717 $230,193 $264,829 $37,930 $105,873 EEEEEEEEEEEEEEEEEEE $257,143 $33,037 $113,642 $13,922 $12,433 $217,785 $244,180 $30,340 $105,433 $12,245 $189,808 $220,148 $424 $15,059 $2,673 $172,189 $210,119 $429 $43,542 $2,370 $179,419 $212,456 $424 $35,635 $2,659 $54,710 $264,829 $44,687 $257,143 $24,032 $244,180

Company 2

Analyze the two companies using the financial ratios and stock valuation. This analysis should include identifying trends within each company and major differences between each company.

Write a summary of the common size analysis that identifies the companies’ strengths and weaknesses.

Answer 1

To analyse the 2 companies we should look into every line items of both the companies balance sheet. In this solution we will go through line items where we would be able to identify which is a stronger company compared to other.

Gross Block: An important factor to check which company has been increasing its assets (Plant & Machinery) which can help them to increases sales in future.

Company 1: The increase in gross block was $8241 million from 2016 to 2018

Company 2: The increase in gross block was $6574 million from 2016 to 2018

Remark: Company 1 has better in terms of Company 1 as the percentage increase in Plant and Machinery was higher than Company 2.

Long term Debt: It is an important factor as the companies should not be too leveraged which might create problems during bad cycles.

Company1: It witnessed an increase in 2017 and then it witness a fall in long term debt which means it has paid off some of its debt which is a good sign.

Company 2: It is an increasing trend, which means growth even if it is there or any expansion that the company did was not from its own funds but partially or wholly financed from outside the company.

Remarks: Company 1 has better position.

Retained Earnings: Its shows the profitability of the company. As we can see both the company has an increasing trend we need to check which company has grown at a higher percentage.

Company 1: Approx 289% is the growth in retained earnings

Company 2: approx 169% is the growth in retained earnings

Remarks: Clearly company 1 has done better in terms of growth in profits

Debt to Equity Ratio: It helps to understand leverage

Company1: 1.93 (Long term Debt/ Total Equity)

Company 2: 0.86 ( Long term debt/ Total Equity)

Remarks: Company2 is better, even though the absolute debt is high but it is in better position to repay at the time of insolvency. Hence less risky.

Overall Remark: there are other factors which one should look into cash position, long term investments which should be in increasing trend. Both the companies more or less has similar reserves. So concluding this company 2 is better with even though less growth the company is less risky and safer for investors.