Business Analysis Part II: Travelers Cos.
It is important for investors and lenders to have a clear understanding of a company’s financial health before investing. A key place to start is by reviewing the financial condition, profit performance, and cash flow of the company. Other areas of importance are how management controls the company also provided by these by the overall financial health of the company. If a company is financially sound it shows that operations are being handled and changes are being implemented as needed. We will review Travelers Insurance in comparison with industry competitors to see what can be found in a company’s income statement, balance sheet, and cash flow statement.
The chart below contains a condensed version of annual income statements, annual balance sheet and annual cash flows form Travelers Insurance, AIG, and W.R. Berkley from 2011 to 2009. By reviewing a three-year period we can gather the necessary information to determine the companies long-term financial health. Investors, managers, and lenders tend to focus on cash flows however the cash flow does not accurately represent the entire financial standing of a company. An example of this can be seen in table one below. When Comparing the three companies cash flow AIG appears to be in better financial shape than the other two. If we look at the cash flow for AIG in 2009 showing a positive cash flow the company appears to be finically healthy but when looking deeper one can see that there is negative net income therefore the company did not earn a profit and by looking at the balance sheet it is evident that the companies assets are not much greater than liabilities. This of course paints a much different picture of the financial well being of the company. In 2009 AIG had a negative net income and only with assistance from the federal government...