Running Head: Ratio Analysis b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b 1
Ratios Of WorldCom
Ratio Analysis b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b 2
WorldCom Common-size Balance Sheet
Common Size Balance Sheet of WorldCom
2001
2000
Balance Sheet
$
%
$
%
Current assets b b
9,205
8.86
9,755
9.86
Property and equipment, net b
38,809
37.35
37,423
37.84
Goodwill and other intangibles
50,537
48.63
46,594
47.11
Other assets
5,363
5.16
5,131
5.19
Total assets
1,03,914
b b b b b b
100
98,903
100
Current liabilities
9,210
8.86
17,673
17.87
Long-term debt
30,038
28.91
17,696
17.89
Noncurrent liabilities
4,642
4.47
4,735
4.79
Minority interests
101
0.10
2,592
2.62
Mandatorily redeemable and other
preferred securities
1,993
1.92
798
0.81
Shareholders' investment
57,930
55.75
55,409
56.02
Total liabilities
1,03,914
100
98,903
100
WorldCom Common-size Income Statement
Common Size Income Statement of WorldCom
2001
2000
$
%
$
%
Revenues
35,179
100
39,090
100
Operating expenses:
Line costs
14,739
41.9
15,462
39.6
Selling, general and administrative
11,046
31.4
10,597
27.1
Depreciation and amortization
5,880
16.7
4,878
12.5
Total
31,665
90.0
30,937
79.1
Operating income
3,514
10.0
8,153
20.9
Interest expense
-1,533
-4.4
-970
-2.5
Miscellaneous income b b
412
1.2
385
1.0
Ratio Analysis b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b 3
Income (loss) before income taxes and minority
interests
2,393
6.8
7,568
19.4
Income tax expense (benefit) (2001)/
Provision for Income Tax (2000) b b
927
2.6
3,025
7.7
Income (loss) before minority interests
1,466
4.2
4,543
11.6
Minority interests
35
0.1
-305
-0.8
Income before cumulative effect of accounting
change
-
-
4,238
10.8
Cumulative effect of accounting change b
-
-
-85
-0.2
Net income (loss) before distributions on mandatorily
redeemable preferred securities
1,501
4.3
4,153
10.6
Distributions on mandatorily redeemable preferred
securities and other preferred dividend requirements
117
0.3
65
0.2
Net income (loss) b
1,384
3.9
4,088
10.5
Computations:
Gross Margin Percent = (Gross profit/ Revenue) * 100
= $ 19.8 / $ 35.18 *100 % = 56.3 %
Return On Sales = Net Income/ Revenue
= ($ -13.84)/ $ 35.18 = -0.39
Return On Assets = Net Income/ Total Assets
= ($ -13.84)/ $ 103.9 = -0.13 or -13 %
Return On Equity = Net Income/ Shareholder’s Equity
= ($ -1384)/ 57,930 = 0.023
Ratio Analysis b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b 4
Total Asset Turnover = Revenue / Total Assets
= 35,179/ 1,03,914 = 0.34
Accounts Receivable Turnover = Net Credit Sales/ Average Accounts Receivable
= $ 22.05/ $ 4.67 = 4.72
Accounts Receivable Days = (Average Accounts Receivable/ Net Credit Sales) * 365
= ($ 4.67/ $ 22.05) * 365 = 77.85 days
Debt To Assets = Total Debt /Total Asset
= $ 30,038/ $ 1,03,914 = 0.289 or 28.9 %
Equity To Assets = Total Equity /Total Asset
$ 57,930/ $ 1,03,914 = 0.557
Debt To Equity = Total Debt / Total Equity
= $ 30,038/ $ 57,930 = 0.518
Equity Multiplier = Total Asset/ Total Equity
$ 1,03,914/ $ 57,930 = 1.79
Current Ratio = Current Assets/ Current Liabilities
= $ 9,205/ $ 9,210 = 0.99
Acid Test = (Current Assets – Inventory)/ Current Liabilities
Ratio Analysis b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b 5
= $ 8805 / 9,210 = 0.96
Net Working Capital = Current Assets - Current Liabilities
= $ 9,205 - $ 9,210 = - 5
Book Value Per Share = Total Shareholder equity / Outstanding shares
= 12.4 / 2.13 = 5.8
Earnings Per Share = Net Income / Outstanding shares
= 1,384/ 2.13 = 64.89
Price Earnings = Stock price/ Earnings Per Share
= 12.20/ 64.89 = 0.187
1. The income statement and balance sheet are two vital financial statements that give a
glimpse into the financial health of an entity. These financial statements of WorldCom
show that diverse elements are interrelated to one another. For example, the net income or
loss affects the equity component of the balance sheet. Similarly, the expenses and
revenue have an effect on the asset and liability components of the balance sheet
(Common-size analysis of financial statements).
2. The revenue presented by the company in 2001 has considerable variation as compared to
the previous year’s revenue (WorldCom Inc.). Similarly, the significant change in net
income (loss) also indicates that manipulation might have taken place in the financial
records of the company (Ramos Montesdeoca et al., 2019).
Ratio Analysis b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b 6
Reference
Common-size analysis of financial statements. (n.d.). Retrieved February 24, 2023, from
https://saylordotorg.github.io/text_managerial-accounting/s17-02-common-size-analysis-
of-financ.html
Ramos Montesdeoca, M., Sánchez Medina, A. J., & Blázquez Santana, F. (2019). Research
topics in accounting fraud in the 21st century: A state of the art. Sustainability, 11(6),
1570.
WorldCom Inc. Sec.gov. (n.d.). Retrieved February 24, 2023, from
https://www.sec.gov/Archives/edgar/data/723527/000100547702001226/d02-36461.txt
