Question

Analyse the following common size balance sheet as at the end of 2017 and 2016:

2017 2016 Current assets: 15 Cash Accounts receivable 22 15 25 Inventory 30 Total current assets 57 55 Property, plant and equipment 32 37 Other assets 13 100 Total assets 100 Current liabilities: 35 Accounts payable 27 23 33 Short-term debt Total current liabilities 58 60 20 Long-term debt 17 Total liabilities 77 78 Common stock and paid 10 10 in capital Retained earnings 12 13 Total shareholders' equity 22 23 Total liabilities and 100 100 stockholders' equity

Hint: Analyse major changes and potential relationships within the B/S accounts and with other financial statements.

Answer 1

Answer:

%	Year 2017	Year 2016	Changes from 2016 to 2017
Current Assets:
Cash	5	15	Cash and other assets have decreased as a % of total assets. All others have increased as a % of total assets
Accounts receivable	22	15
Inventory	30	25
Total current assets	57	55
Property, plant and equipment	37	32
Other assets	6	13
Total assets	100	100
Current liabilities:
Accounts payable	35	27	Short-term debt has decreased as a % of total liabilities. All others have increased as a % of total liabilities. There is a marginal decrease in shareholder's equity
Short-term debt	23	33
Total current liabilities	58	60
Long-term debt	20	17
Total liabilities	78	77
Common stock and paid in capital	10	10
Retained earnings	12	13
Total shareholders' equity	22	23
Total liabilities and shareholders' equity	100	100

From the above please note the following:

a) The major changes from 2016 to 2017 are as follows:

i) Cash and Other assets have decreased since there is a repayment of short term debt as a result there is a decrease in short-term debt.

ii) Investment in fixed asset has increased as a result there is a increase in long-term debt as well as accounts payable.

b) Other changes from 2016 to 2017 are as follows:

i) Good sold but bills yet to be realized which leads to increase in accounts receivable.

ii) Less sales which leads to accumulation of inventory.

iii) Goods purchased but bills yet to be paid which leads to increase in accounts payable.

iv) Dividend has been paid to its shareholders which leads to marginal decrease in retained earnings.