The Liabilities Section of the Company's Most Recent Consolidated Balance

question 151

Essay

The liabilities section of the company's most recent consolidated balance sheets is provided below:
$\begin{array}{c}\text { King Cotton Company }\\ \text {Consolidated Balance Sheets}\\ \text { (in millions)}\\\begin{array}{llr}\hline && \text { December 31, } \\&\text { Year 2 } & \text { Year 1 } \\ \text { Current liabilities } &\\ \text { Short-term borrowings } &\$250&\$200\\ \text {Accounts payable and other current liabilities } &4,500&4,450\\ \text {Income taxes payable } &\underline{200}&\underline{50}\\ \text {Total current liabilities } &\$4,950&\$4,700\\\\ \text { Long-term debt } &2,700&3,000\\ \text {Other long-term liabilities } &3,800&3,950\\ \text { Deferred income taxes} &1,500&1,400\\\end{array}\end{array}$

-Refer to King Cotton Company.Which one of the liabilities shown in the balance sheets is used in the calculation of the debt-to-equity ratio? If we can assume that the shareholders' equity total remained relatively constant for the two years,how would the ratio change (increase/decrease)from Year 1 to Year 2? What would this say about the company's financial position?

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Definitions:

Investment

Expenditures that increase the volume of physical capital (roads, factories, wireless networks) and intangible ideas (formulas, processes, algorithms) that help to produce goods and services. Also known as economic investment. Not to be confused with financial investment.

Marginal Analysis

The comparison of marginal (“extra” or “additional”) benefits and marginal costs, usually for decision making.

Extra Benefits

Additional advantages or services provided beyond the standard or expected, often included in employment contracts, insurance policies, or membership programs.

Extra Costs

Expenses that are not anticipated, often occurring outside of normal or planned operating expenses.