Consider the common-size balance sheets in Exhibit 1 for Company A, Company
B, as well as the industry average.
Exhibit 1: Balance Sheet and Industry Average
| | Company
A |
Company
B |
Industry
Average |
|---|
| ASSETS | |
| Current assets | |
| Cash and cash equivalents | 5 | 5 | 7 |
| Marketable securities | 5 | 0 | 2 |
| Accounts receivable, net | 5 | 15 | 12 |
| Inventories | 15 | 20 | 16 |
| Prepaid expenses | 5 | 15 | 11 |
| Total current assets | 35 | 55 | 48 |
| Property, plant, and equipment,
net |
40 | 35 | 37 |
| Goodwill | 25 | 0 | 8 |
| Other assets | 0 | 10 | 7 |
| Total assets | 100 | 100 | 100 |
| LIABILITIES AND SHAREHOLDERS’ EQUITY | |
| Current liabilities | |
| Accounts payable | 10 | 10 | 10 |
| Short-term debt | 25 | 10 | 15 |
| Accrued expenses | 0 | 5 | 3 |
| Total current liabilities | 35 | 25 | 28 |
| Long-term debt | 45 | 20 | 28 |
| Other non-current liabilities | 0 | 10 | 7 |
| Total liabilities | 80 | 55 | 63 |
| Total shareholders’ equity | 20 | 45 | 37 |
| Total liabilities and shareholders’
equity |
100 | 100 | 100 |