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| 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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