Analyze the following common size balance sheet. Consider the below guidance: Have structural changes taken place in...

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Finance

Analyze the following common size balance sheet. Consider thebelow guidance:

Have structural changes taken place in the components of thebalance sheet?

How have cash and other assets evolved from 2016 to 2017 andwhat appear to be the uses of cash during the year?

How has the financing structure of the company evolved from2016 to 2017?

Considering the limited information provided, does the companyappear to have been more or less profitable, risky and liquidduring the year?

2017 2016

Current assets

Cash 5% 15%

Accounts receivable 20% 17%

Inventory 35% 20%

Total current assets 60% 52%

PPE 35% 38%

Other assets 5% 10%

Total assets 100% 100%

Current liabilities

Accounts payable 32% 20%

Short term debt 20% 40%

Total current liabilities 52% 60%

Long-term debt 22% 15%

Total liabilities 74% 75%

Capital 5% 15%

Retained earnings 21% 10%

Total equity 26% 25%

Total liabilities&equity 100% 100%

Answer & Explanation Solved by verified expert

4.2 Ratings (525 Votes)

1 The total debt to equity ratio has slightly reduced from 7525 3 in 2016 to 7426 284 in 2017 The reduction in capital percentage indicates the significant increase in the retained earnings since it is unlikely that most of the paid up capital would be bought back This also means that the absolute size of the balance sheet has increased almost 3 times provided the absolute value of capital did not change No buy back or fund raising through new shares 2 Cash as a percentage of assets have significantly reduced although the PPE have not increased in percentage terms This means the cash could have been used for either of the two purpose First The cash could have been used See Answer

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