Eastman Kodak Balance Sheet Analysis

Published December 2, 2013 by Mayrbear's Lair

Accounting.

A corporation’s balance sheet provides significant data about a company’s assets and liabilities and divulges the true nature of their financial condition. Makoujy (2010) contends that balance sheets are the financial statements which provide an overview of a company’s assets, liabilities, and stockholders’ equity. These documents disclose how much capital is brought into an organization and how it is allocated to satisfy the firm’s liabilities and owner’s equity commitments (Makoujy, 2010). This information is important for helping investors deduce a company’s risk levels by analyzing the profit and loss measurements they provide. It also gives creditors an indication of a firm’s financial condition from the short-term liquidity ratios they disclose. The focus of this research continues with the analysis work centered on the Kodak Company’s financial condition provided from their 2007 Annual Report. This study will take a closer look at the report’s balance sheets to reveal how strategists determine the firm’s net financial position by the information provided in the statements that summarize Kodak’s assets, liabilities, and owner’s equity. The research will disclose how the data from the balance sheets help investors and creditors in their financial decision making by examining the figures that revealed the truth about Kodak’s operating condition and overall net worth during that given point in time. The findings of this research, from evaluating the information provided in the Kodak Company’s balance sheet statements, will determine that the company’s overall financial condition and their stability as a business during that time was below par.

The Balance Sheet’s Function

The true nature of a company’s balance sheet that is provided their annual reports, serves to summarize the company’s assets, liabilities, and shareholder equity during a specified period of time. To understand these concepts more clearly, it is important to comprehend that all the possessions of a company (assets) are either owned free and clear (equity) or were purchased by acquiring debt (liability). To measure a company’s performance levels, Skonieczny (2012) asserts that their balance sheets must follow one important equation in that the total amount of assets must equal the total amounts of both the company’s liabilities and equity or net worth. In other words, the accounting figures of a balance sheet must mathematically balance out by adhering to the following equation:

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For example, when the Kodak Company makes a down payment for property, equipment, or any other expenditure meant to help with the operation of the firm, that payment would be classified as an example of equity. In the meantime, the mortgage payments on their facilities are considered a form of debt (Skonieczny, 2012). Balance sheets can be intimidating and difficult to comprehend for those who are not proficient in mathematics or are untrained and lack bookkeeping skills. To help those that are unfamiliar traverse safely through these accounting waters, one efficient instrument that is used for scrutinizing a balance sheet is the common-size balance sheet. Common-size balance sheets provide the same information only rather than disclosing the actual figures, the values are provided as percentages with a common denominator. This strategy enables investors and creditors to compare account sizes as percentage rates over a period of time. This kind of balance sheet is also ideal for helping investors identify and observe trends.

kodak-logo

Kodak Company’s Annual Report Findings

Even though they may be difficult to comprehend, balances sheets provide vital information that creditors use to measure a company’s short-term liquidity. Fraser and Ormiston (2010) postulate that the information provided on the balance sheet with respect to a company’s inventory is an important element in the examination of a company’s liquidity. This component is significant, for instance, because creditors can determine the ability of an organization to meet currency needs as they arise (Fraser & Ormiston, 2010). In addition these figures can offer insight as to how well a company is performing during a certain period in time. For instance, Kodak’s balance sheet (Exhibit A) indicates that in 2006 their current assets (including cash equivalents, short term investments, accounts receivable and inventories) totaled about $5.5 million, while in 2007 that figure rose to $6. However, the total assets reported in 2006 were much higher ($14.3 million) than they were in 2007 where it dropped down about a million dollars ($13.6 million). This indicates that the long-term assets values increased during that time period which may have resulted from the accumulated depreciation values.

Shareholders are interested in a company’s balance sheet because it provides valuable information that can help them determine a company’s risk levels. For example, Kodak’s balance sheet (Exhibit A) indicates that in 2007, their assets totaled about $14 million while their liabilities reflected a total amount of about $11 million. To help investors ascertain the ratio measurements they may look to a common-size balance sheet to give them a simpler overview of their financial condition. Using this strategy analysts would conclude that during that given period, the Kodak Company committed a substantive percentage (around 78%) of their total assets on meeting their debt obligations leaving only 22% that was allocated towards shareholder equity. Those figures are a slight improvement however, from 2006, whose figures during that year disclosed that the company committed 90% of their total assets to meet their debt requirements. To investors and creditors these figures represent a high level of risk and a clear indication that although they were making progress, the Kodak Company was still not in a healthy financial condition during this period in time.

Conclusion

Balance sheets measure a firm’s profitability and provide shareholders important information on current and future risk levels. It is for this reason that stockholders and owners require a system to help them measure a company’s performance levels in a periodic manner. The balance sheets help provide investors and creditors with information that allows them to determine whether a company is operating in a profitable manner which also helps them predict whether stock prices will rise or fall. A closer examination of the Kodak Company’s balance sheets indicates the risks they took were considerable. However, it also revealed that their strategies and cutbacks were slowly proving effective which allowed them to keep the company operational. In conclusion, the findings of this study’s assessment with respect to the Kodak Company’s balance sheet provided from their 2007 Annual Report, deduced that although the Kodak Company was making a valiant effort to maintain operations, they were still struggling in their efforts to achieve profitable goals during that given time.

Exhibit A

Kodak Balance Sheet Exhibit A Assignment 2

(Kodak, 2008)

References

(2008). Kodak. Washington: Securities and Exchange Commission.

Fraser, L., & Ormiston, A. (2010). Understanding financial statements. Pearson Education.

Makoujy, R. (2010). How to read a balance sheet: The bottom line. New York, NY: McGraw-Hill.

Skonieczny, M. (2012). The basics of understanding financial statements. Schaumburg, IL: Investment Publishing.

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