Acc501 2nd assignment solution spring 2012

Question No.1 (10 Marks)
ABC Company Limited and XYZ Company Limited are involved in the manufacturing of Leather products. Following are the balance sheets of both the companies for the year 2010.
Balance Sheets
As on 31
st
December 2010
Particulars ABC Company XYZ Company
Rs. (in millions) Rs. (in millions)
Cash 86 20
Account Receivable 172 27
Inventory 396 45
Total Current Assets 654 92
Net Plant and Equipment 2,735 49
Total Assets 3,389 141
Accounts payable 315 8
Notes payable 232 10
Total Current Liabilities 547 18
Long term debt 532 50
common stock and paid in surplus 510 55
Retained earnings 1800 18
Total owners’ equity 2,310 73
Total Liabilities & Owners’ Equity 3,389 141
Although both the firms are involved in the same kind of business but their balance sheets represent a huge difference in their financial strength. As a finance student, you are required to analyze these balance sheets by using the common size analysis technique. Also provide comments on the liquidity and leverage position of both the companies with the help of your analysis. Note: Your solution should be in the following form of single comparative statement followed by the comparative comments regarding the liquidity and leverage position of both companies.