Question

In: Accounting

Balance​ Sheet: ​3/31/2016 ​12/31/2015 ​9/30/2015 ​6/30/2015 Assets Current Assets Cash and cash equivalents 293 300 255...

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

long dash—

200

​Property, plant, and equipment

979

991

995

​1,052

Goodwill

744

748

736

742

Other assets

777

830830

903903

797

Total Assets

​3,756

3 comma 7133,713

3 comma 7643,764

​3,834

Liabilities

Current Liabilities

Accounts payable

876

​1,467

922

980

​Short/current long-term debt

410

2

173

288

Other current liabilities

long dash—

long dash—

long dash—

long dash—

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

minus−346

negative 454−454

1 comma 6361,636

​1,540

Total Liabilities and​ Shareholder's Equity

​3,756

3 comma 7133,713

3 comma 7643,764

​3,834

​(all values in millions of​ dollars).

a. What change in the book value of the​ company's equity took place at the end of

20152015​?

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

20152015​?

d. Does the​ company's book value of equity in

20162016

imply that it is​ unprofitable? Explain.

Solutions

Expert Solution

Solution:

a) Calculation of the Change in the Book Value of the Company's Equity took Place at the End of the 2015:

Book Value of Equity at the end of 2014 $1,644
Book Value of Equity at the end of 2015 ($457)
Change in Book Value of Equity at the end of 2015 over end of 2014 value ($2,101)

The book value of equity decreased by $2,101 compared with that at the end of previous quarter, and was negative.

b) In the Above Answer, we know that the Book Value of Equity is negative. The Market to book Ratio and its book Debt Equity Ratio are not Meaningful. Its Market debt-equity ratio may be used in comparison.

c) From the Information of the Statement of Cash Flows there will be the Decrease of Book Value of Equity Resulted from an Increase in debt, and it will be used to Repurchase $2,110 Worth of the Firm's Shares.

d) Negative book value does not mean that the Company is Unprofitable. Loss in Gross Profit will be the one cause. If the Company borrows to Repurchase Shares or Invest in Intangible Assets, So it can have a Negative Book Value of the equity.

ekkarill92 answered 1 year ago
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