Balance Sheet Analysis of Hon Industries

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 receivable is not a condition to be desired by either creditors or investors, but, depending upon the relationship of receivables to sales. In this case, however, accounts receivable in 1992 represented 40.7 days of average daily sales, while the comparable level in 1991 was 39.3 days and that in 1990 was 34.8 days. The trend in receivables is definitely in the wrong direction, and the trend is beneficial to neither creditors nor investors.

Inventories in 1992 represented 17.7 percent of total current assets. This proportion was down f…

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