Accounting: What the Numbers Mean 9th Edition by Wayne W McManus, Daniel F Viele, David H Marshall

Exercise 9

Comparative analysis of current asset structures The 2008 annual reports of Pearson plc and The McGraw-Hill Companies, Inc., two publishing and information services companies, included the following selected data as at December 31, 2008, and 2007:

PEARSON PLC
	2008	2007
(Amounts in millions)
Cash and cash equivalents	£ 685	£ 560
Trade and other receivables, net of provisions for bad and doubtful
debts, and sales returns of £ 444 in 2008 and £ 333 in 2007	1,342	946
Inventories	501	368
Financial assets—marketable securities and derivative financial
instruments	57	68
Noncurrent assets classified as held for sale	—	117
Total current assets	£2,585	£2,059

THE McGRAW-HILL COMPANIES, INC.
(Amounts in thousands)	2008	2007
Cash and cash equivalents	$ 471,671	$ 396,096
Accounts receivable (net of allowances for doubtful accounts and
sales returns of $268,685 in 2008 and $267,681 in 2007)	1,060,858	1,189,205
Total inventories	369,679	350,668
Deferred income taxes	285,364	280,525
Prepaid and other current assets	115,151	127,172
Total current assets	$ 2,302,723	$ 2,343,666

Required:

a. Do you notice anything unusual about the data presented for Pearson? Comment specifically about some of the difficulties you would expect to encounter when comparing financial statement data of a U.S.-based company to data of a non-U.S.-based company.

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b. Review the current asset data presented for each company. Comment briefly about your first impressions concerning the relative composition of current assets within each company.

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c. Pearson’s revenues are derived from educational publishing (65%) includ­ing Prentice Hall and Addison-Wesley, consumer publishing (19%) including Penguin Books, newsprint (8%) such as Financial Times, and information and media services (8%). McGraw-Hill’s revenues are derived from educational pub­lishing (42%), financial services such as Standard&Poor’s (42%), and informa­tion and media services (16%) such as J.D. Power and Associates and Business­Week. How can these data help you make sense of your observations in part b?

Step 1 of 6

Comparative analysis relative to Current assets structure

By extracting the information :

Table1: The summarized financial statement of P Plc:

P PLC
(Amounts in millions)		2008	2007
Cash and cash equivalents		£ 685	£ 560
Trade and other receivables, not of provisions forbad and doubtful debts, and sales returns of £ 444 in 2008 and £ 333 in 2007		1,342	946
Inventories		501	368
Financial assets–marketable securities and derivative financial instruments		57	68
Noncurrent assets classified as held for sale		-	117
Total current assets		£2,585	£2,059