Good Essay On Cabot Corporation Accounting

Based on the individual entries on the attached financial statement presented by Cabot Corporation, it can be seen that even with a net income of $29,052, Cabot Corporation’s cash flow is still neither positive nor negative. This can be evidenced by the fact that in its balance sheet, the total assets and liabilities of the company are equal. This means that even with a positive net income for the financial year ending in December 31, 2015, Cabot Corporation’s liabilities are still so large that even a positive net income still is not enough to cover and service all its debts and liabilities.
Conducting a financial analysis, be it by means of doing a horizontal, vertical, or ratio analysis is an important point to consider at this point because Cabot Corporation’s management team members must be looking for a way to improve its balance sheet—one where the total assets far exceed the value of the total liabilities. There are numerous ways how to arrive at that scenario. Cabot Corporation, for example, can work towards improving its net income by a considerable margin so that it can afford to service and cover all of its liabilities.
Another way to arrive at that ideal situation would be by capping or reducing the company’s expenses so that even when the net income levels would stay flat over the next year, the total assets would still have a bigger in value than the total liabilities come next year’s filing of financial statements. Ideally, however, Cabot Corporation must work to increase its net income and at the same time reducing its expenses. That would most likely make reaching the accounting goals of the company more efficient. In order to see and establish a trend, data over a specified time period, not just data provided for a certain instance, are required. In this case, only data for the fiscal year 2014 to 2015 were provided so it would basically be impossible to create a trend. However, what one can see is that Cabot Corporation’s net income has been small at only $29,052.
Now this may be due to the fact that the cost of goods sold, which is a component of net income although it lies on the expense side, is more than 50% of the total sales. This means that the gross profit in terms of percentage of sales is in fact small. This can be identified as a major issue or risk that Cabot Corporation has to address. One opportunity that they can take advantage of is the opportunity being presented by newly introduced production technologies. By changing the way how they produce their products, they can make the entire process more cost efficient. With that, the company can greatly reduce its costs and in the process, be able to reach higher net income levels and in the long run, be able to present a more positive balance statement.
Compared to other companies operating in the same industry, Cabot Corporation can be seen as an underperformer, mainly because of its financial performance at least for the year 2015. If I would be an investor, I would certainly not invest in the company at this point because its valuation relative to its present earnings for the year can be considered highly expensive. Other companies have posted more positive earnings and so their valuations are more backed by fundamentals, a quality that investors look for whenever they choose a company that they can invest in. Unfortunately, this quality is currently not being manifested by Cabot Corporation.