Why Bear Stearns 's Long Term Assets Essay
1) The significant unusual increase in long-term assets
From 2003 to 2007, we can see that Bear Stearns’s long-term assets increased $170,836 (124.96%), while its current assets increased only 16.38%. This is a red flags because long-term assets are usually funded by long-term debts or stockholders’ equity. If a company put too many assets in its long-term categories, its financial flexibility will be impaired.
2) The significant increase in current and long-term liabilities
From 2003 to 2007, Bear Stearns’ current liabilities increased $140,326 (80.32%), and its long-term liabilities increased $38,545 (128.51%). With too many liabilities on hand could be a red flag. As we already know, debts usually have covenants restrict companies’ activities so as to protect investors’ interests. Considering Bear Stearns’ business nature, it is very difficult for it to meet these covenants and conduct ideal investment activities. Besides, a large portion of debt will hinder a company’s financial structure, responds towards unexpected situations, and credit ratings.
3) The decrease in current ratio
From 2003 to 2007, Bear Stearns’ current ratio decreased from 43.19% to 27.88%. Current ratio is a liquidity ratio measuring a company’s ability to pay short-term obligation. A huge decline indicates a red flag because there is a possibility that a company may have a liquidity problem.
4) The increase in debt/equity ratio
From 2003 to 2007, Bear Stearns’s debt/equity ratio…