Green Domes, Inc. builds environmentally sensitive structures. The company\'s 20
ID: 2444922 • Letter: G
Question
Green Domes, Inc. builds environmentally sensitive structures. The company's 2014 revenues totaled 2,760 million. At December 31, 2014, and 2013, the company had, respectively, 658 million and 603 million in current assets. The December 31, 2014 and 2013 balance sheets and income statement report the following amounts:
At year end (in millions) 2014 2013
Liabilities and stockholders equity
current liabilities:
accounts payable 107 179
accrued expenses 97 177
employee compensation and benefits 45 15
current portion of long-term debt 7 20
total current liabilities 256 391
long-term debt 1384 1300
post-retirement benefits payable 102 154
other liabilities 8 20
stockholders equity 1951 1492
total liabilities and stockholders equity 3701 3357
year end (in millions)
cost of goods sold 1546 1650
Requirements:
1. Describe each of Greene Domes, Inc.'s liabilities and state how the liability arose.
2. What were the company's total assets at December 31, 2014? Evaluate the company's leverage and debt ratios at the end of 2013 and 2014. Did the company improve, deteriorate or remain about the same over the year?
3. Assume that beginning and ending inverntories for both periods did not differ by a material amount. Accounts payable at the end of 2012 was 190 million. Calculate accounts payable turnover as a ratio and days' payable outstanding (DPO) for 2013 and 2014. Calculate current ratios for 2013 and 2014 as well. Evaluate whether the company improved or deteriorated from the standpoint of ability to cover accounts payable and current liabilities over the year.
Explanation / Answer
(1)
a) Accounts payable is the money that Greene owes to its suppliers and other working capital payments due within 1 year.
b) Accrued expenses are expenses that accrued during the year but were not paid.
c) Employee compensation & benefits arise from the unpaid ortion of employee compensation not yet paid during the year.
d) Current portion of long term debt is that portion of total long term debt whose repayment falls due within one year.
e) Long term debt is the debt issued repayment of which falls due after one year.
f) Post-retirement benefits payable are the pension liabilities arising out of the employees working with Greene.
(2)
(i) By accounting equation, Total assets = Total liabilities and Equity = $3,701 million (31st Dec 2014)
(ii) Leverage ratio = (Short term debt + long term debt) / shareholder equity
2013, Leverage = (20 + 1,300) / 1,492 = 0.8847, or 88.47%
2014, leverage = (7 + 1,384) / 1,951 = 0.7129 or 71.29%
So company's reliance on debt has reduced which is an improvement.
(iii) Debt ratio = (Short term debt + long term debt) / Total assets
2013, debt ratio = (20 + 1,300) / 3,357** = 0.3932 or 39.32%
2014, debt ratio = (7 + 1,384) / 3,701 = 0.3758 or 37.58%
There is reduction in debt ratio, so improvement in the company's performance in the debt aspect.
NOTE: Out of 3 multi-part questions, the first 2 are answered in full.
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