Balance Sheet Analysis of Hon Industries

BALANCE SHEET ANALYSIS: HON INDUSTRIES

This research presents a balance sheet analysis of Hon Industries. The analysis includes (1) a linebyline analysis of assets, liabilities, and owners' equity and (2) an analysis of sources of capital. The analysis is based only on data included in the firm's annual report for 1992. This annual report includes balance sheets for the 19901992 period, and includes selected financial data for the 19821992 period.

Cash and equivalents in 1992 represented 23.4 percent of total current assets. This proportion was up from 20.0 percent in 1991 and 21.4 percent in 1990. This increase in liquidity strengthened the firm's position with creditors, but may not be viewed as positively by investors, as cash is not an earning asset.

Shortterm investments in 1992 represented 3.4 percent of total current assets. This proportion was up from 2.9 percent in 1991 and 0.6 percent in 1990. Shortterm investments do not damage a firm's liquidity position (in most instances), while providing some earnings on near liquid assets. The increased proportion of shortterm investments in 1992, thus, would be viewed in positive terms by both creditors and investors.

Receivables in 1992 represented 46.0 percent of total current assets. This proportion was up from 43.4 percent in 1991 and 43.2 percent in 1990. An increase in the proportion of current assets in accounts receiv

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This proportion was little changed from the 1.6 percent in 1991, but was lower than the 2.1 percent in 1990. The character of these other assets is not revealed in the firm's annual report; thus, prudence dictates that these assets should be assumed to be non earning. Within this context, both creditors and investors would prefer to see these amounts lower. Liabilities Current liabilities Accounts payable and accrued expenses in 1992 represented 86.0 percent of total current liabilities. This proportion reflected an increase from the 85.1 percent in 1991 and from the 82.2 percent in 1990. This trend would be perceived favorably by investors in the firm, as it reflects a greater use of someone else's money by the firm, but would not be welcomed by the firm's creditors, as it is their money that is being used by the firm. Accrued facilities closing and reorganization expenses were phased out in 1990, when they represented 5.6 percent of total current liabilities. The disposition of these accrued expenses would be viewed favorably by both creditors and investors, as the action reduced claims against the firm's assets. Income taxes due in 1992 represented 6.3 percent of total current liabilities. This proportion reflected

Category: Economics - B