Some statement of financial position information is shown here (all values in mi
ID: 2762970 • Letter: S
Question
Some statement of financial position information is shown here (all values in millions
of dollars):
Statement of Financial
Position: 2013 2012 2011 2010
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 1043
Long-term investments 128 97 — 200
Property, plant, andequipment 979 991 995 1052
Goodwill 744 748 736 742
Other assets 777 827 911 797
Total Assets 3,756 3,710 3,772 3,834
Liabilities
Current Liabilities
Accounts payable 876 1,467 922 980
Short/current longtermdebt 410 2 173 288
Other current liabilities — — — —
Total CurrentLiabilities 1,286 1,469 1,095 1268
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 StockholderEquity –346 –457 1,644 1,540
Total Liabilities Stock Eq 3,756 3,710 3,772 3,834
a. What change in the book value of the company’s equity took place at the end of
2012?
b. For 2012 and 2013, is the company’s market-to-book ratio meaningful? Is its
book debt-equity ratio meaningful? Explain.
c. Does the company’s book value of equity in 2013 imply that it is unprofitable?
Explain.
Explanation / Answer
Details Amt $ Million a Book Value of Equity at the end of 2011 1,644 Book Value of Equity at the end of 2012 (457) Change in Book Value of Equity at the end of 2012 over end of 2011 value= (2,101) So there is net reduction of $2101 million in equity book value in 2012 b Book to Market or debt-equity ratio for 2012 & 2013 will not be much meaningful as the Common equity value is eroded by negative balance in retained earning and the purpose of the ratios will not be served. c Opening Book Value Equity 2013 (457) Closing Book Value Equity 2013 (346) Change in Equity Book Value 2013 111 So there is net increase in retained earning in 2013 Therefore the operation is profitable in 2013
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