Many analysts argue that comparing a company that has grown via acquisitions to a company

that has grown organically is difficult. Their main complaint is that the balance sheets of the

two company's are not comparable because the company that has grown via acquisitions will

recognize goodwill and the fair values of any intangibles it acquired. However, because most

internally generated intangibles are not considered assets, the company that grew organically

will not have goodwill or many intangibles on its balance sheet even if it has invested heavily

in research and development, brand development, etc.

In light of the above, many analysts make adjust the balance sheets of acquisitive companies

by removing goodwill and purchased intangibles.

a. What do you think of the arguments made above? Describe the advantages and

disadvantages of making the adjustments describe above?

b. Suppose you think the arguments described above have merit, make the necessary

adjustments to the financial statements provided in the Excel file. How do these

adjustments affect the KPIs discussed in question three? Does your view of KH's

performance change?