Professional Documents
Culture Documents
Learning Objectives
1.How
3.Balance
Balance sheet
classification:
Overview
ASSETS
Current assets
Property, plant and
equipment
Investments
Other assets
LIABILITIES
EQUITY
Current liabilities
Long-term debt
Other liabilities
Preferred and
common stock
Additional paid-in
capital
Retained earnings
Contributed
Capital
ASSETS
LIABILITIES
EQUITY
Amortized cost
or current
market value
Net
realizable
value
Lower of cost or
current market
value
5
4-5
7
4-7
Assets (contd.)
Long-term Investments: Comprise of the
following
Securities (i.e., bonds, stock, long-term notes)
Fixed assets (i.e., land, building)
Special funds (i.e., pension fund, bond sinking
fund)
Nonconsolidated subsidiaries or affiliated
companies
8
Assets (contd.)
Property, Plant, Equipment (i.e., building,
Land, Machinery and equipment, capital
leases): assets used in firms operations
and meet the following criteria:
1. Economic life > 1 year;
2. Acquired for use in operation;
3. Not for resale to customers;
4. $ is material. (materiality)
Depreciation will be applied except for land.
9
Assets (contd.)
Intangible Assets: assets with no
physical substance but have value
based on rights or privileges that
belong to the owner (i.e., goodwill,
patents, franchises, trademarks,).
Amortization for limited life
intangibles (i.e., patents, franchises)
and impairment test for indefinite-life
intangibles (i.e., goodwill).
10
Amount due
at maturity
Historical
cost
Discounted
present
value
11
4-11
Liabilities
A. Current Liabilities
Contingent Liabilities
14
B. Long-Term Liabilities
15
C. Other Liabilities
16
Combination of
different
measurement
bases
17
4-17
Stockholders Equity
a. Contributed Capital
19
b. Accumulated Other
Comprehensive Income
c. Retained Earnings
appropriated
unappropriated
21
ASSETS
LIABILITIES
+
EQUITY
Balance Sheet
Helps
assess
3. Liquidity
Cash conversion
4. Solvency
5. Flexibility
22
2. Capital Structure
The balance sheet provides critical
information for understanding an
entitys capital structure.
Capital structure refers to how much
of an entitys assets are financed from
debt versus equity sources.
24
3. Liquidity Ratios
Question:
Does higher ratio always indicate better
financial status?
25
4. Solvency
Solvency (contd.)
27
5. Flexibility
Flexibility refers to the ability to adapt or
revise to a new strategy for different
circumstances.
The ability to adjust to unexpected
downturn in the economic environment
in which it operates or to take
advantage of profitable investment
opportunities when they arise.
28
Analytical insights:
Understanding the business
29
4-29
+
Long-lived Assets
=
Current Liabilities
+
Non-current Liabilities
+
Stockholders Equity
U.K. Format:
Fixed Assets
+
Current Assets
Current Liabilities
Non-current Liabilities
=
Capital Employed
30
4-30
Financial statement
Footnotes are an integral part of
footnotes
policies.
2. Subsequent event disclosures.
3. Related party transactions
31
4-31
Summary
1.
2.
3.
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