Comparative Analysis of Financial Statements Between Two Companies

2809 Words Nov 1st, 2008 12 Pages
A Case Report on the Financial Statements of Reed Elsevier and Thomson Corporation

Executive Summary

With the objective to understand the business performance of the two entities, we reviewed the 2007 financial statements of both company and tried to obtain some insight on the profitability and solvency of each entity.

The two companies we study are: Reed Elsevier and Thomson, in the filed of information and publishing.

Reed Elsevier is listed in below stock exchanges: REN (Euronext Amsterdam), REL (London), RUK and ENL (NYSE). Thomson was shown (before acquiring Reuters) as TOC (NYSE) and TOC (TSX).

As the two multinational companies we are studying covering diversified businesses, here in the article we are only
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The total shareholder equity for the period is 4,032, therefore the ROE = 1,713 / 4,032 = 0.42

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Cash flow statement

As another major component of the financial statement, cash flow statement reflects the cash and cash equivalent flows of an entity.

Here we observe the two companies’ cash flow statement in detail.

On Reed Elsevier, the cash flow is shown as below, which indicates the cash sources and uses from operating activities, investing activities, and financing activities.

Cash Flow Statement – Reed Elsevier (Euro)

By 31 December 2007, total net cash generated from operating activities amounted to 1,213m, after deducting tax and interest payments. However, the net cash from operating activities dropped by 93m against fiscal year 2006.

We also see a positive status of cash flow as there was huge cash inflows of 2,674m from discontinued operations, resulting from selling off a major business segment of higher education (Harcourt Education). This facilitates the company’s focus on professional research field and also supports the company for further acquisition and development.

With this additional source of cash, we have seen tremendous growth in the increase of cash and cash equivalents to 3,355m at the end of 2007.

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On Thomson Corporation: In the same Accounting period, total cash generated from operating activities in 2007 decreased by 309m, while at the same

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