Prepare a list of the most important additional pieces of information you would
ID: 2443225 • Letter: P
Question
Prepare a list of the most important additional pieces of information you would want before making a final decision about the investment, This list should include some accounting information it might also include nonaccounting and nonquantitative items. Year-end financial information is provided below for companies that make baseball caps. Study the information provided. If you were a creditor of these companies, would you be concerned about the ability of either company to replay its depts? Explain your answers. The Book Werenz reported sales for 2008 of $6,23,000. Cost of goods sold was 55% of sales. and operating expenses were $2,155,000, internet expense was $190,000. Income taxes were 35% of pretax income. Total assets at the end of 2008 were$5,523,000.Explanation / Answer
Analyzing on the company’s investing activities (COBB)
Net change in Property, Plant and equipment between 2007 and 2006 was $283 and $ 314. The company decreases the amount of investment, especially in the Property, Plant and equipment. Total Capital expenditures were $392 in 2007, compared with $424 in 2006 it is a not good sign for increasing production and it shows that the company’s productive capacity is decreasing year by year.
Total long-term debt was decreased by $261 in 2007 than that in 2006 $264. It shows that the firm is clearing the debt it is a good sign Note :-(sorry if wrong about numbers it is not visible )….….Or if 2006 amount is not 264 if it is 254 then it would be negative sign for the company
The firm decreased its operating income by $7 in 2006 to $5 in 2007 it is negative sign
Analyzing on the company’s investing activities (Speaker Inc.)
Net change in Property, Plant and equipment between 2007 and 2006 was $171 and $ 162. The company increased the amount of investment, especially in the Property, Plant and equipment. Total Capital expenditures were $259 in 2007, compared with $246 in 2006 it is a good sign for increasing production and it shows that the company’s productive capacity is growing year by year.
Total long-term debt was decreased by $100 in 2007 than that in 2006 $104. It shows that the firm is clearing the debt it is a good sign
The firm increase its operating income by $19 in 2006 to $24 in 2007 it is positive sign
Conclusion:-
By observing both companies credit worthiness of company (Speaker Inc.) is far better than the (COBB) If I am the creditor of the company surely I will concerned about the ability of company to repay its debt because if I invest some money I definitely expect return and safety of getting back my principal amount