Question

2. For the years 2016-2018, Analyze at least three items on the balance sheet (or financial statement ratios based on balance sheet items) for your base company and discuss whether the company’s performance related to these items appear to be improving, deteriorating, or remaining stable. Justify your answer. Provide ratios also.

Assets

Fiscal year is January-December. All values USD Millions.	2018	2017	2016	2015	2014	5-year trend
Cash & Short Term Investments	10,990	19,510	16,125	12,009	8,726
Cash Only	10,718	10,610	9,158	9,096	6,134
Short-Term Investments	272	8,900	6,967	2,913	2,592
Total Accounts Receivable	7,142	7,024	6,694	6,437	6,651
Accounts Receivables, Net	5,978	5,827	5,575	5,367	5,680
Accounts Receivables, Gross	6,079	5,956	5,709	5,497	5,817
Bad Debt/Doubtful Accounts	(101)	(129)	(134)	(130)	(137)
Other Receivables	1,164	1,197	1,119	1,070	971
Inventories	3,128	2,947	2,723	2,720	3,143
Finished Goods	1,638	1,436	1,258	1,247	1,377
Work in Progress	178	167	150	161	173
Raw Materials	1,312	1,344	1,315	1,312	1,593
Other Current Assets	586	1,500	1,515	1,825	2,101
Miscellaneous Current Assets	586	1,500	1,515	1,825	2,101
Total Current Assets	21,846	30,981	27,057	22,991	20,621
Net Property, Plant & Equipment	17,589	17,240	16,591	16,317	17,244
Property, Plant & Equipment - Gross	40,164	39,106	36,818	35,747	36,300
Buildings	8,941	8,796	8,306	8,061	8,114
Land & Improvements	1,078	1,148	1,153	1,184	1,288
Machinery & Equipment	27,715	27,018	25,277	24,764	25,146
Construction in Progress	2,430	2,144	2,082	1,738	1,752
Accumulated Depreciation	22,575	21,866	20,227	19,430	19,056
Total Investments and Advances	2,409	2,042	1,950	2,311	2,689
LT Investment - Affiliate Companies	2,409	2,042	1,950	2,311	2,689
Long-Term Note Receivable	86	59	105	140	93
Intangible Assets	30,633	28,582	27,863	27,258	29,053
Net Goodwill	14,808	14,744	14,430	14,177	14,965
Net Other Intangibles	15,825	13,838	13,433	13,081	14,088
Other Assets	721	900	563	650	809
Deferred Charges	428	554	225	259	362
Tangible Other Assets	293	346	338	391	447
Total Assets	77,648	81,756	76,870	72,483	73,428
Asset Turnover	0.81	-	-	-	-
Return On Average Assets	15.70%	-	-	-	-

Liabilities & Shareholders' Equity

Answer 1

Asset turnover = $ 0.81

Total assets = $ 77648

Turnover= $77648/0.81 = $ 95862

Return on average assets = 15.70%

Average assets = $(77648 + 81756) = $ 159404

Net income = 15.70 x $159404/100

= $ 25026

Now we analyse three items on balance sheet:

1. Short term investment has reduced from last year drastically. It has gone down from $ 8900 to $ 272. Which means that the company must have faced a cash crunch as a increase in working capital requirements and thus, might have liquidated the investments.

Now we analyze short term investments to total current assets ratio:

2014: $ 2592/$20621= 0.13

2015: $ 2913/$22991 = 0.13

2016: $ 6967/$ 27057 = 0.26

2017: $ 8900/$ 30981 = 0.29

2018: $ 272/$ 21846 = 0.01

Thus, we see a stability in the beginning, then it improves which might mean that the surplus cash generated must have been invested in short term investments, in the final year we see a massive downfall. As explained earlier the company must have sold it to improve cash liquidity.

2. Accounts receivable has an increasing trend in the last five years. Which means that the sales on account and the collection is more or less the same in last five years. This also means average collection period has also remained same. This is a healthy sign as it shows steady growth.

Now we analyze accounts receivable to total current assets ratio:

2014: $6651/$ 20621 = 0.32

2015: $6437/$ 22991 = 0.28

2016: $6694/$ 27057 = 0.25

2017: $7024/$ 30981 = 0.23

2018: $7142/$ 21846 = 0.33

The accounts receivable ratio has increased in last year which shows that the company has more funds blocked in debtors. This is detrimental considering the liquidity aspect as discussed in the first analysis. The company must take steps to recover the debtors receivable quickly.

3. Inventories in hand also show a steady growth during the last 5 years. Which means that the purchase of raw materials, operations of converting raw materials into finished goods measured in terms of work in progress and sale of finished goods are more or less the same.

Now we analyze the inventories to total current assets ratio:

2014: $3143/$ 20621 = 0.15

2015: $2720/$ 22991 = 0.12

2016: $2723/$ 27057 = 0.10

2017: $2947/$ 30981 = 0.10

2018: $3128/$ 21846 = 0.14

The total funds blocked in inventories were less in last 4 years, this year it has increased. The company must make efforts to make more sales, and make less purchases unless it receives steady orders from customers.