ATC 9-3 Real-World Case Unusual Types of Liabilities
In the liabilities section of its 2016 balance sheet, Bank of America reported “noninterest-bearing deposits” in U.S. offices of over $438 billion. Bank of America is a very large banking company. In the liabilities section of its 2016 balance sheet, Newmont Mining Corporation reported “reclamation and remediation liabilities” of more than $2.0 billion. Newmont Mining is involved in gold mining and refining activities. In its 2016 balance sheet, Delta Air Lines’ largest current liability reported was $4.6 billion for “air traffic liability.”
Required
a. For each of the preceding liabilities, write a brief explanation of what you believe the nature of the liability to be and how the company will pay it off. To develop your answers, think about the nature of the industry in which each of the companies operates.
b. Of the three liabilities described, which do you think poses the most risk for the company? In other words, for which liability are actual costs most likely to exceed the liability reported on the balance sheet? Uncertainty creates risk.
ATC 9-4 Business Applications Case Performing Ratio Analysis Using Real-World Data
Newell Brands, Inc. is the marketer of the well-known Rubbermaid plastic containers, but it also markets many other consumer brands, including Sharpie, Calphalon, Parker and Waterman writing instruments, and Lenox hand and power tools. The 2016 numbers are larger than those for 2015 because Newell acquired Jarden Corporation in 2016. Jarden’s brands include Breville and Mr. Coffee. The following data were taken from the company’s 2016 annual report. Dollar amounts are in millions.
| Fiscal Years Ending | December 31, 2016 | December 31, 2015 |
|---|---|---|
| Current assets | $7,484.5 | $2,493.5 |
| Current liabilities | $4,292.0 | $1,988.6 |
| Total assets | $33,898.4 | $7,221.0 |
| Total liabilities | $22,453.1 | $5,394.6 |
Required
a. Compute Newell’s current ratios for 2016 and 2015.
b. Compute Newell’s debt-to-assets ratios for 2016 and 2015.
c. Based on the ratios computed in Requirements a and b, did Newell’s liquidity get better or worse from 2015 to 2016?
d. Based on the ratios computed in Requirements a and b, did Newell’s solvency get better or worse from 2015 to 2016?
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