1. Start with the Capital Accounts. How do they differ? How are they the same? Are they realistically presented? What are the Book Values, and what are the present Ratios of the stock Prices to Book Value.
2. Now look at the Fixed Assets (the Property Account). When you read Chapter Five of the little Graham book you will realize that assets are not always what they appear to be. Do either of your companies show as Assets items that need explanation? What are they? How are they explained? You might have to go into the footnotes to the Financial Statement to find the answers.
3. Are the Non Current Assets material and how are they explained? Are there material Intangible Assets? What would be material for companies as large as the ones you are working with?
4. Do your companies have Deferred Tax Accounts? How are they treating taxes?
5. Now let's look at the Current Assets. Are the companies maintaining adequate liquidity? Mr. Moovon is going to want to see the relevant ratios, so you had better calculate them and have them ready. (You will find most of them in Chapter 3 of the text.)
6. Liabilities. As Mr. Moovon always says, "You can't be sure about the Assets but the Liabilities are always real." Does either company have too much debt? If so, CB&M won't touch them. Can either company carry significantly more debt? How much more? CB&M always loads the companies it acquires with as much debt as they can carry. That's how they finance the deal.
7. Are there any hidden assets? This calls for very careful analysis.
Respond to each question in the order listed
1. Are the companies as profitable as they should be? What ratios would tell us that? OK! Now calculate them. Let's see those Efficiency Ratios.
2. Now that you have calculated the ratios, what can CB&M do to make them more profitable? What do you suggest?
3. As a double check provide a DuPont Analysis on both companies.