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FINANCE ACCOUNTING EXERCISES. U. THE HAGUE

QUESTIONNAIRE
Part 1 (10 points)
Provide the name of the company and the link to their website.
In your answer, reproduce the following information from your chosen company by
pasting or scanning the information into your document (10 points total, 2 for each
item below)

Name of the company: ARCELOR MITTAL

WebPage:

Annual report 2017:

https://annualreview2017.arcelormittal.com/~/media/Files/A/Arcelormittal-AR-
2017/documents/2017-annual-report.pdf.
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PART 1
1. Balance sheet over 2017 with comparative data over 2016

a) CONSOLIDATE STATEMENT 2017

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b) BALANCE STATEMENT 2016

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2. Income Statement over 2017 with comparative data over 2016

a) INCOME STATEMENT 2017

b)INCOME STATEMENT 2016

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3. Cash flow statement over 2017 with comparative data over 2016
Cash Flow 2017

CASH FLOW 2016

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4. The (market) stock price at Balance sheet date 2017 and 2016

2017

In 2017, the ArcelorMittal shares price has raised by 29% compared to 2016. On
December 29th 2017 the stock Price: 32,7euros
December 29th 2016 the stock price: 23.02 euros
Difference: 9, 68 euros, 29, 6024 %, source: NASDAQ

Chart (a): ArcelorMittal share performance during the years 2006-2017

source:Annual report ArcelorMittal 2017

5. The number of shares outstanding at Balance sheet date 2017 and 2016

At December 2017:1,019,916,787 shares

At December 2016: 1.019,496,143 shares

Chart(b), source:Annual report ArcelorMittal 2017

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PART 2
 Using the data (book values) of the information provided above from your chosen
company, calculate the following eleven (11) ratio’s for 2016 and 2015 (always
define the equations used for each ratio and specify what numbers you used. In
addition to providing the equation and the calculation, explain in your own
wording what the ratio represents. (66 points total, 6 per ratio, being 2 for the
correct calculation, 2 for the correct usage of inputs and equations, and 2 for the
correct explanation). If your answer includes further information out of the
financial statements of your researched company, be sure to include that
information in your assignment. If for any reason the required ratio can’t be
calculated, provide the equation and the reason why you can’t provide it.

1. Current Ratio:
FORMULA 2017 2016
current assets 26,745 1.25 22,410 1.24
current liabilities 21,410 18,115

Current ratio: “ It is an indicator used by the finance industry to assess a company's short-
term liquidity”. It shows a company's ability to produce enough cash to pay off all debts should
they become due at once. (Source: Investopedia)
When the current ratio is over 2, it is considered being in good financial health. The
current ratio for Arcelor Mittal in both 2017 and 2016 is below 2, which means that
Arcelor Mittal has had problems to pay its short term obligations.

2. Quick Ratio

FORMULA 2017 2016

current assets - inventory 8,759 0.41 7,513 0.41
current liabilities 21,410 18,115

The quick ratio is a metric of a company’s short-term liquidity and measures a

company’s ability to meet its short-term obligations with its most liquid assets.
Inventory, even though it is a current asset, is not considered a quick asset since it
cannot be converted to cash within a very short time frame. Furthermore, if inventories
have to be sold quickly, the company may have to accept a lower price than the book
value. (source: Investopedia)

. Quick ratio for Arcelor Mittal was less than 1 in 2017 and 2016, In fact, 0.41 in both
years, it means they could not currently fully pay back its current liabilities.
 Inventory 2017: 17,986
 Inventory 2016: 14,734
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3. Accounts receivable Turnover

FORMULA 2017 2016

sales 68,679 68,679 20.1 times 56,791 20.1 times
av accounts receivables (3,863+2,974)/2 3418.5 2826.5

The receivables turnover ratio “is an accounting measure used to quantify a firm's
effectiveness in extending credit and in collecting debts on that credit. The receivables turnover
ratio is an activity ratio measuring how efficiently a firm uses its assets”.(source: Investopedia)
Arcelor Mittal has the same performance in 2017 and 2016.

4. Days Receivable

2017
365 𝑑𝑎𝑦𝑠 𝑖𝑛 2017 365
= = 18.1592
𝐴𝑐𝑐𝑜𝑢𝑛𝑡𝑠 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒 𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟 20.1
2016
365 𝑑𝑎𝑦𝑠 𝑖𝑛 2016 365
= = 18.16
𝐴𝑐𝑐𝑜𝑢𝑛𝑡𝑠 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒 𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟 20.09

Days Receivable are a measure of the average number of days that it takes a company
to collect payment after a sale has been made. (Source: Investopedia)
Arcelor Mittal could receive the money after approximately 18 days after selling.

5. Inventory Turnover

Years 2017 2016 2015

Cost of sales 60876 50428 65196
General Administrative
expenses 2369 2202 2543
Total 63245 52610
INVENTORIES 17968 14734 13424
INVENTORY AVERAGE 16351 14079

Cost of good sold (COGS): “It is a measurement of the production costs of

goods and services for a company. COGS can include the cost of materials,
labor costs directly related to goods produced’. (Source: Investopedia)
In my case: Cost of sales + General administrative expenses

2017
𝐶𝑂𝐺𝑆 63245
= = 3.868
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑖𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 16351
2016
𝐶𝑂𝐺𝑆 52610
= = 3.736
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑖𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 14079
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Inventory turnover is a ratio showing how many times a company's inventory is sold and
replaced over a period of time. We can appreciate the year 2017 and 2016 Arcelor Mittal had a
low inventory turnover this indicates the weaker sales during those years.

6. Days Inventory

2017
365 𝑑𝑎𝑦𝑠 𝑖𝑛 2017 365
= 3.868 = 94.36 days
𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 𝑡𝑢𝑟𝑛𝑜𝑣𝑒𝑟 𝑟𝑎𝑡𝑖𝑜
2016
365 𝑑𝑎𝑦𝑠 𝑖𝑛 2016 365
= = 97.69 days
𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 𝑡𝑢𝑟𝑛𝑜𝑣𝑒𝑟 𝑟𝑎𝑡𝑖𝑜 3.736

Days Inventory, This ratio measure how many it takes for inventory to turn into sales
and is the inventory days as well. (Source: Investopedia)
In my case, in 2017 Theoretically every 95 days Arcelor Mittal held an inventory, it was 3 days
less than in 2016.

7. Return on Assets (ROA) (use book value; use (Net Income + Interest
Expense) / Total Assets)

The ROA figure gives investors an idea of how effective the company is in converting
the money it invests into net income. The higher the ROA number, the better, because
the company is earning more money on less investment. (Source: Investopedia)

Years 2017 2016 2015

NET FINANCE COST(financing cost -net) 875 2056 2858
NET INCOME (loss) 4575 1734 8423
TOTAL OF ASSETS 85,297 75,142 76,846
AVERAGE OF ASSESTS 80,219.5 75,994

2017

𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒 + 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝐸𝑥𝑝𝑒𝑛𝑠𝑒 875 + 4575

= 𝑋 100% = 6.79%
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑜𝑓 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠 (80,219.5)

2016

𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒 + 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝐸𝑥𝑝𝑒𝑛𝑠𝑒 1734 + 2056

= 𝑋 100% = 4.98%
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑜𝑓 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠 (75,994)

In 2017, Arcelor Mittal ROA was 6.79%, this means that. Every dollar that
this company invested in assets in 2017 generated 6.79 cents of net income. It
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means that it has improved respect to 2016 when this company generate 4.98
cents of net income as a consequence of the investment in assets.

8. Return on Equity (use book value; use Net Income / Total Equity)
=ROE

Return on equity measures a corporation's profitability by revealing how much

profit a company generates with the money shareholders have invested. (Source:
Investopedia)

Years 2017 2016 2015

NET INCOME (loss) 4575 1734 8423
TOTAL EQUITY(Shareholder equity) 38789 30135 25272
AVERAGE OF EQUITY 34462 27703.5

2017
𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒 (4575)
= 𝑋 100% = 13.2754%
𝑇𝑜𝑡𝑎𝑙 𝐸𝑞𝑢𝑖𝑡𝑦 34462

2016
𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒 (1734)
= 𝑋 100% = 6.2591%
𝑇𝑜𝑡𝑎𝑙 𝐸𝑞𝑢𝑖𝑡𝑦 27703.5

For calculating this I have used.

1. Profit for the period of Income Statement is regarded as Net income
(except minority interest)
2. Shareholder’s Equity is regarded as Total equity,

ROE is 13.27% means Arcelor Mittal has produced 13 cents of profit for every
1 euro of shareholders' equity in 2017 almost the double than in 2016.

9. Earnings per share:

Earnings per share (EPS) is the portion of a company's profit allocated to each
outstanding share of common stock. Earnings per share serves as an indicator of
a company's profitability. (Source: Investopedia)
EPS is calculated as:

EPS = (Net Income - Dividends on Preferred Stock) / Average Outstanding

Shares)
2017
Data:
At December 2017:1,019,916,787 shares

𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒 − 𝑃𝑟𝑒𝑓. 𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑𝑠 (4575𝑥106 ) − 0

=
𝑊𝑒𝑖𝑔ℎ𝑡𝑒𝑑 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 # 𝑜𝑓 𝑠ℎ𝑎𝑟𝑒𝑠 1,019,916,787
= 4.85660 𝑒𝑢𝑟𝑜 𝑝𝑒𝑟 𝑠ℎ𝑎𝑟𝑒
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2016
Data: At December 2016: 1.019,496,143 shares.
𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒 − 𝑃𝑟𝑒𝑓. 𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑𝑠 (1734𝑥106 ) − 0
=
𝑊𝑒𝑖𝑔ℎ𝑡𝑒𝑑 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 # 𝑜𝑓 𝑠ℎ𝑎𝑟𝑒𝑠 1.019,496,143
= 1.700840𝑒𝑢𝑟𝑜 𝑝𝑒𝑟 𝑠ℎ𝑎𝑟𝑒

This company during 2017 had more profit per share respect to 2016.

10. Price / Earnings ratio (P/E)

In lay terms this ratio can show you the euro amount an investor can expect to invest in
a company in order to receive one euro of that company’s profits.

Data:
Years 2017 2016
MARKET SHARE PRICE 32,7euros 23.02 euros
EARNING PER SHARE 4.85 1,7
VOLUMEN OF SHARES 1,019,916,787 1.019,496,143

2017
𝑀𝑎𝑟𝑘𝑒𝑡 𝑃𝑟𝑖𝑐𝑒 𝑜𝑓 𝑎 𝑠ℎ𝑎𝑟𝑒 32.7 𝑒𝑢𝑟𝑜𝑠
= = 6.733
𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠 𝑝𝑒𝑟 𝑠ℎ𝑎𝑟𝑒 4.856𝑒𝑢𝑟𝑜𝑠/𝑠ℎ𝑎𝑟𝑒
2016
𝑀𝑎𝑟𝑘𝑒𝑡 𝑃𝑟𝑖𝑐𝑒 𝑜𝑓 𝑎 𝑠ℎ𝑎𝑟𝑒 23,02 𝑒𝑢𝑟𝑜𝑠
= = 13.554
𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠 𝑝𝑒𝑟 𝑠ℎ𝑎𝑟𝑒 1.7 𝑒𝑢𝑟𝑜𝑠 𝑝𝑒𝑟 𝑠ℎ𝑎𝑟𝑒

According to P/E result, Arcelor Mittal was more attractive for the investors during 2016
than in 2017 due to the P/E performance has reduced in almost 50%.

11. Free Cash Flow (FCF):

“It is an efficiency and liquidity ratio that measures how much more cash a company produces
than it uses to run and expand the business by subtracting the capital expenditures from the
operating cash flow”
( source: My accounting course,https://www.myaccountingcourse.com/financial-ratios/free-cash-flow)

FREE CASH FLOW = CAPITAL EXPENDITURES- OPERATING CASHFLOW

Years 2017 2016

Net cash flow from operating activities 4,563 2,708
-/- Net cash flow used investing activities 2,830 1,143
Free Cash Flow 1,733 1,565
 Information from the Cash Flow Statement –Annual report 2017
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This ratio indicates that during 2017 the company has improved its performance in
terms of liquidity. It increases exactly in 10.7% more than 2016.

PART 3
Re-Calculate the Return on Assets (7.) and the Return on Equity (8.) using the market
price of equity (stock price) for both 2017 and 2016(and obviously using the same equation
as above). You may assume that the book value of Debt equals the Market Value of Debt
(8 points, 4 points each).

(a) ROE CALCULATION:

These information has been collected from the Arcelor Mittal annual report 2017 and 2016.

YEAR 2017 2016 2015

Net Income 4575 1734 8423
Market per share 32.7 23.02 12.9
number of shares 1019916,787 1019496,143 555,270,378
Market Capitalization 33351278935 23468801212 71624287876
Average of the Equity 28410040073 15315894544

2017
𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒 4575000000
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑜𝑓 𝑇𝑜𝑡𝑎𝑙 𝐸𝑞𝑢𝑖𝑡𝑦
= (284,10040073) 𝑋 100%=16.10346197%= 16%

2016
𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒 1734000000
= (15315894544) 𝑋 100%=11.32157182 =11.32%
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑜𝑓 𝑇𝑜𝑡𝑎𝑙 𝐸𝑞𝑢𝑖𝑡𝑦

(b) ROA CALCULATION

These information has been collected from the Arcelor Mittal annual report 2017 and 2016.

2017 2016 2015

Net Income / Loss of the year 4,575 1,734
Interest expense / net finance cost 875 2056 2858
Market Capitalization 33351278935 23468801212 71624287876
Average of Total assest 28410040073 15315894544
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2017
𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒 + 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝐸𝑥𝑝𝑒𝑛𝑠𝑒
𝐴𝑉. 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠
(4,575+875)𝑋1000000 5450000000
= 𝑥100 = (15315894544) 𝑥 100=
(28410040073)

19.18335907= 19%

2016
𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒+𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝐸𝑥𝑝𝑒𝑛𝑠𝑒 (1,734+2056)𝑥1000000 1734002056
= 𝑥100 = 15315894544=
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑜𝑓 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠 ( 15315894544)

11.32158524%= 11.321 %

PART 4 : QUESTIONAIRE

(4.1)How does this alter your answer from the earlier calculation above (2 points)?

In my case, the ROA and ROE using the market value has been increased . This could
be due to the during the years 2015 , 2016 and 2017 the profit of the company , the
assets and the equities have been more higher the market capitalization.
From my perspective, to use the market value is more attractive, because the debt ratio
is decreasing. As a consequence , Arcelor Mittal can reduce its final cost -interests.
(4.2) What additional insight does it give, if any (4 points)?

When we use the shares with the market value, we can reduce the financial costs.

(4.3)Is it better to use market values or book values to calculate the Return on Assets and
the Return on Equity and if so, why (4 points)?

In order to answer this question first let’s use the definition of these two concepts
Book value: Book value literally means the value of the business according to its
books or financial statements. (Source: Investopedia)
Market Value: “It is the value of the company according the stock value. The value
of a company that is traded on the stock market, calculated by multiplying the total
number of shares by the present share price”. (Source: Investopedia)
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According to these concepts if the market value is an accurate assessment of a company's

value is determined by stock market investors who buy and sell the stock. Market value
has a more meaningful implication in the sense that it’s the price you have to pay to own
a part of the business regardless of the company’s stated book value. However, if we use
the book value the investor could know the value and the company history. So it depends
what kind of risks you want to take.

(4.4) What other information would you need to meaningfully interpret the results of the
11 ratios calculated above and why? (6 points)

To calculate the 11 ratios we have used, the financial statements, those ratios can be
useful to generate the trend if past ratios of that company are given. Another additional
information that could help us would be, the balance sheet and the cash flow,
specifically the accounts receivable to commercial, the accounts payable to commercial,
the inventories, the equity in the income statement, sales and net profit, etc.
.
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PART 5 BIBLIOGRAPHIA

1.https://www.investopedia.com/ask/answers/070114/what-formula-calculating-
current-ratio.asp
3. https://www.investopedia.com/terms/r/receivableturnoverratio.asp
4. https://www.investopedia.com/terms/d/dso.asp
5.ARCELOR MITTAL SHARE PRICE:
https://www.nasdaq.com/symbol/mt/historical?tf=1y