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Solutions 3-38
3.33 a. continued.
Noncurrent Liabilities:
Long-Term Debt ............................... $ 180,654 33.3% $ 73,674 21.0%
Common Stock ................................. $ 4,115 0.8% $ 4,113 1.2%
Additional Paid-in Capital ............. 63,379 11.7% 56,982 16.2%
b. The largest asset is property, plant, and equipment, which represents the
c. Between 2006 and 2007, Cemex decreased the percentage of tangible
noncurrent assets and increased the percentage of intangible noncurrent
3.34 (Relating market value to book value of shareholders’ equity.)
3-39 Solutions
a. (1) Coke—One important asset missing from the balance sheet of Coke is
Solutions 3-40
3.34 a. continued.
cost (adjusted downward for depreciation) instead of current market
(2) Bristol—Bristol engages in research and development to discover new
drugs. U.S. GAAP requires firms to expense research and
(3) Bankers Trust—The market-to-book value ratio for Bankers is 1.0.
(4) International Paper (IP)—IP reports its forestlands on the balance
sheet at acquisition cost. IP likely acquired the land many years ago.
(5) Disney—Disney depreciates the cost of film inventory over its
expected useful life. Fortunately for Disney and other film production
3-41 Solutions
b. (1) Coke—Coke’s current assets are less than its current liabilities. This
Solutions 3-42
3.34 b. continued.
or exceed current liabilities at market value. Shareholders’ equity
represents a higher proportion of long-term financing than long-term
(2) Bristol—The interesting insight from studying Bristol’s capital
structure is the relatively small proportion of long-term debt. The
(3) Bankers Trust—Bankers relies heavily on short-term sources for
financing, principally deposits and short-term borrowing. Customers
(4) International Paper (IP)—IP carries a high proportion of noncurrent
assets and matches this with a high proportion of long-term financing.
3-43 Solutions
Solutions 3-44
3.34 b. continued.
their capital structures that could force them into bankruptcy during
(5) Disney—Disney reports a significant excess of current assets over
current liabilities. Interpreting this excess involves two opposing
considerations. Some of Disney’s films continue to generate revenues
3.35 (Relating market value to book value of shareholders’ equity.)
a. (1) Pfizer—Pharmaceutical firms make ongoing expenditures on research
and development (R&D) to develop new products. Some of these
3-45 Solutions
Solutions 3-46
3.35 a. continued.
resulted in valuable technologies, the firm might report 20% of the
expenditures on R&D each period as an asset. If these new
(2) Nestlé—The products of Nestlé carry a high degree of brand
recognition, which leads loyal customers to purchase Nestlé products
consumer products companies to ascertain the approximate price paid
for identifiable assets and the portion paid for brand names. Each of
3-47 Solutions
(3) Promodes—Promodes is the largest grocery store chain in France and
likely has some brand name recognition that does not appear on its
Solutions 3-48
3.35 a. continued.
in the latter valuations. This real estate is probably easier to value
brand recognition and undervalued fixed assets.
(4) Deutsche Bank—Most of the assets of a commercial bank are
reported on the balance sheet at current market values. Marketable
(5) British Airways—The aircraft and ground facilities of British Airways
(6) New Oji Paper Co.—The balance sheet of New Oji Paper Co. includes a
high proportion of intercorporate investments in securities and
3-49 Solutions
b. (1) Pfizer—One question related to Pfizer is why it would use such a
Solutions 3-50
3.35 b. continued.
the balance sheet. Although this exercise does not provide the
A second question related to Pfizer is the large percentage for
other noncurrent liabilities on the balance sheet. This amount
(2) Nestlé— Nestlé, like Pfizer, has highly predictable cash flows from its
brand name products and generates sufficient cash flows in the long
(3) Promodes—The majority of the assets of Promodes is short-term
(4) Deutsche Bank—Deutsche Bank obtains the vast majority of its funds
3-51 Solutions
short-term financing might appear risky. However, a large portion of
its assets is in highly liquid cash and short-term investments. A large
Solutions 3-52
3.35 b. continued.
(5) British Airways—The majority of the assets of British Airways is in
(6) New Oji Paper Co.—The balance sheet of Oji portrays some
relationships that are typical of Japanese companies. First, note the
3.36 (Identifying industries using common-size balance sheet percentages).
Firm (1) has a high percentage of receivables among its assets and substantial
3-53 Solutions
Solutions 3-54
3.36 continued.
Firms (2) and (3) have a high proportion of their assets in property, plant,
and equipment. Commonwealth Edison and Newmont Mining are both capital
This leaves Hewlett Packard and May Department Stores and Firms (4)
and (5). Firms (4) and (5) both have substantial receivables and inventories,
