Week 3 Asset Distribution
Asset Distribution
(See Amalgamated Hat Rack’s balance sheet for Dec 31, 2016 below)
| 2015 | 2016 | |||
| Assets | ||||
| Cash and marketable securities | $355,000 | $430,000 | ||
| Accounts receivable | $555,000 | $512,000 | ||
| Inventory | $835,000 | $755,000 | ||
| Prepaid expresses | $123,000 | $98,000 | ||
| Total current assets | $1,868,000 | $1,795,000 | ||
| Gross property, plant, and equipment | $2,100,000 | $1,900,000 | ||
| Less: accumulated depreciation | $333,000 | $234,000 | ||
| Net property, plant, and equipment | $1,767,000 | $1,666,000 | ||
| Total assets | $3,635,000 | $3,461,000 | ||
| Liabilities and Owner's Equity | ||||
| Accounts payable | $450,000 | $430,000 | ||
| Accrued expenses | $98,000 | $77,000 | ||
| Income tax payable | $17,000 | $9,000 | ||
| Short-term dept | $435,000 | $500,000 | ||
| Total current liabilities | $1,000,000 | $1,016,000 | ||
| Long-term dept | $750,000 | $660,000 | ||
| Total liabilities | $1,750,000 | $1676,000 | ||
| Contributed capital | $900,000 | $850,000 | ||
| Retained earnings | $985,000 | $935,000 | ||
| Total owner's equity | $1,885,000 | $1,785,000 | ||
| Total liabilities and owner's equity | $3,635,000 | $3,461,000 | ||
Table: Amalgamated Hat Rack Balance Sheet as of December 31, 2016 Updated
Reference: Adapted from Finance for Managers, Harvard Business Essentials (2002) Updated
It is useful to know what assets a company owns that are producing its revenue. A brief look at the company’s balance sheet can tell you that, and you can get a better appreciation of what specific assets has invested in by listing the assets and plotting them on a pie chart as shown below.
| Year-end FY 2016 | |||
| Assets: | |||
| Cash and marketable securities | $430,000 | ||
| Accounts receivable | 512,000 | ||
| Inventory | 755,000 | ||
| Prepaid expenses | 98,000 | ||
| Property, Plant, & Equipment | 1,666,000 | ||
| Total Assets: | $3,461,000 | ||
Hat Rack Asset Distribution 2016.pdf Download Hat Rack Asset Distribution 2016.pdf
Looking at the chart, you can see that Amalgamated’s largest group of assets at the end of 2016 was Property, Plant, and Equipment, followed by Inventory. Again, this is about what you would expect for a manufacturing company. Note that Amalgamated’s investment in Property, Plant, and Equipment at the end of 2016 was 48% of its total assets.
Question: Is this good or bad?
Answer: Again, you can’t tell without comparing Amalgamated’s asset distribution with that of other hat rack companies. If other companies are able to generate the same amount of sales with half the assets that Amalgamated has, you would suspect that Amalgamated has problems with productivity. On the other hand, if other companies had twice the assets that Amalgamated has, but still only generated the same amount of sales, you would feel pretty good about Amalgamated. This illustrates again, we emphasize, that almost everything in financial analysis is relative.