Some balance sheet information is shown here (all values n millions of dollars).
ID: 2340609 • Letter: S
Question
Some balance sheet information is shown here (all values n millions of dollars). see at the end
questions:
a. What change in the book value of the company's equity took place at the end of 2015 ?
b. Is the company's market-to-book ratio meaningful? Is its book debt-equity ratio meaningful? Explain.
c. Find the company's other financial statements from that time online. What was the cause of the change to its book value of equity at the end of 2015 ?
d. Does the company's book value of equity in 2016 imply that it is unprofitable? Explain.
Solution .... EXPLAIN HOW TO CALCULATE A .. how did they come up with $2.104
a. What change in the book value of the company's equity took place at the end of 2015 ?
The book value of equity decreased by $2.104 billion from the end of the previous year, and was negative
b. Is the company's market-to-book ratio meaningful? Is its book debt-equity ratio meaningful? Explain. (Select all the choices that apply.)
A. Because the book value of equity is negative in this case, the company's market-to-book ratio and its book debt-equity ratio are not meaningful.
C. Because the book value of equity is negative in this case, the company's market debt-equity ratio may be used in comparison.
c. Find the company's other financial statements from that time online. What was the cause of the change to its book value of equity at the end of 2015 ?
Information from the statement of cash flows helped explain that the decrease of book value of equity resulted from an increase in debt that was used to repurchase$2.104 billion worth of the firm's shares.Your answer is correct.d. Does the company's book value of equity in 2016 imply that it is unprofitable? Explain. (Select all the choices that apply.)
C.Negative book value of equity does not necessarily mean the firm is unprofitable.
Your answer is correct.
D.If a firm borrows to repurchase shares or invest in intangible assets (such as R&D), it can have a negative book value of equity.
Balance Sheet:
3/31/2016
12/31/2015
9/30/2015
6/30/2015
Assets
Current Assets
Cash and cash equivalents
293
300
255
232
Net receivables
401
362
385
460
Inventory
374
342
437
306
Other current assets
60
43
53
45
Total Current Assets
1,128
1,047
1,130
1,043
Long-term investments
128
97
—
200
Property, plant, and equipment
979
991
995
1,052
Goodwill
744
748
736
742
Other assets
777
832832
919919
797
Total Assets
3,756
3,715
3,780
3,834
Liabilities
Current Liabilities
Accounts payable
876
1,467
922
980
Short/current long-term debt
410
2
173
288
Other current liabilities
—
—
—
—
Total Current Liabilities
1,286
1,469
1,095
1,268
Long-term debt
2,381
2,124
474
475
Other liabilities
435
574
559
551
Total Liabilities
4,102
4,167
2,128
2,294
Total Shareholder's Equity
346
452
1,652
1,540
Total Liabilities and Shareholder's Equity
3,756
3,715
3,780
3,834
Balance Sheet:
3/31/2016
12/31/2015
9/30/2015
6/30/2015
Assets
Current Assets
Cash and cash equivalents
293
300
255
232
Net receivables
401
362
385
460
Inventory
374
342
437
306
Other current assets
60
43
53
45
Total Current Assets
1,128
1,047
1,130
1,043
Long-term investments
128
97
—
200
Property, plant, and equipment
979
991
995
1,052
Goodwill
744
748
736
742
Other assets
777
832832
919919
797
Total Assets
3,756
3,715
3,780
3,834
Liabilities
Current Liabilities
Accounts payable
876
1,467
922
980
Short/current long-term debt
410
2
173
288
Other current liabilities
—
—
—
—
Total Current Liabilities
1,286
1,469
1,095
1,268
Long-term debt
2,381
2,124
474
475
Other liabilities
435
574
559
551
Total Liabilities
4,102
4,167
2,128
2,294
Total Shareholder's Equity
346
452
1,652
1,540
Total Liabilities and Shareholder's Equity
3,756
3,715
3,780
3,834
Explanation / Answer
a) The book value of equity decreased by $2.104 billion from the end of the previous year, and was negative
b) A) Because the book value of equity is negative in this case, the company's market-to-book ratio and its book debt-equity ratio are not meaningful.Because the book value of equity is negative in this case, the company's market debt-equity ratio may be used in comparison.
c) Information from the statement of cash flows helped explain that the decrease of book value of equity resulted from an increase in debt that was used to repurchase$2.104 billion worth of the firm's shares
d) Book value of equity changes does not meant that, the company is unprofitable. Due to shortage of fund company may takes more debt to over come the existing crisis. Fund raised may be for the expansion of business. Negative book value of equity does not necessarily mean the firm is unprofitable.
The value of 2104 is the difference of equity value at the end of 30-09-2015 & 31-12-2015 (1652-(-452))=2104
If a firm borrows to repurchase shares or invest in intangible assets (such as R&D), it can have a negative book value of equity.
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.