INTRODUCING THE BALANCE SHEET

Transcription

1 EXECUTIVE EDUCATION INTRODUCING THE BALANCE SHEET ARJEN MULDER

2 EXPLANATION OF THE TOPIC This video will familiarise you with the concept of a balance sheet, by showing: 1. What is the purpose of a balance sheet? 2. What do the elements represent? 3. Why should you, as a non-financial manager, care?

3 PURPOSE OF BALANCE SHEETS A balance sheet shows: What a firm owns ( assets ), What it owes ( liabilities ) to its creditors, The value of the business to the owners ( shareholder equity ), all at a specific moment in time. Since the snapshot information is not necessarily informative, the balance sheet usually also shows the data of the previous year. Together, we can not only infer whether a firm has done well over the past year, but also whether it has improved or not.

4 WHY SHOULD A NON-FINANCIAL MANAGER KNOW THIS? Analysts use balance sheet information to: Forecast whether a firm can pay its bills, Analyse how much money the owners have put into the firm. This is called financial statement analysis. In class we will practise how to do that. To derive useful information from a balance sheet, a minimum working knowledge is required.

5 WHAT IS A BALANCE SHEET? Consider the following typical balance sheet. FnF Labs, thousands Cash and cash equivalents 100 Short-term borrowings 50 Short-term financial assets 140 Accounts payable 120 Accounts receivables 250 Income taxes 70 Inventories 500 Accrued liabilities and provisions 240 Other current assets 10 Other current liabilities 20 Total current assets 1,000 Total current liabilities 500 Property, Plant, and Equipment 1,700 Corporate bonds 750 Patents 100 Long-term bank loans 420 Goodwill 200 Leasing obligations 430 Total non-current assets 2,000 Long-term liabilities 1,600 Owners Equity 900 Total Assets 3,000 Total Liabilities and O.E. 3,000

6 SOME DETAILS OF A BALANCE SHEET (1) BALANCE SHEET EXAMPLE Current assets 1,000 Current liabilities 500 Non-current assets 2,000 Long-term liabilities 1,600 Owners Equity 900 Total Assets 3,000 Total Liabilities & O.E. 3,000

7 SOME DETAILS OF A BALANCE SHEET BALANCE SHEET EXAMPLE: CURRENT ASSETS Current assets 1,000 Current liabilities 500 Cash and cash equivalents 100 Long-term liabilities 1,600 Short-term financial assets 140 Owners Equity 900 Accounts receivables 250 Inventories 500 Other current assets 10 Non-current assets 2,000 Total Assets 3,000 Total Liabilities & O.E. 3,000

8 SOME DETAILS OF A BALANCE SHEET BALANCE SHEET EXAMPLE: NON-CURRENT ASSETS Current assets 1,000 Current liabilities 500 Non-current assets 2,000 Long-term liabilities 1,600 Property, Plant, and Equipment 1,700 Owners Equity 900 Patents 100 Goodwill 200 Total Assets 3,000 Total Liabilities & O.E. 3,000

9 SOME DETAILS OF A BALANCE SHEET BALANCE SHEET EXAMPLE: CURRENT LIABILITIES Current assets 1,000 Current liabilities 500 Non-current assets 2,000 Short-term borrowings 50 Accounts payable 120 Income taxes 70 Accrued liabilities and provisions 240 Other current liabilities 20 Long-term liabilities 1,600 Owners Equity 900 Total Assets 3,000 Total Liabilities & O.E. 3,000

10 SOME DETAILS OF A BALANCE SHEET BALANCE SHEET EXAMPLE: LONG-TERM DEBT Current assets 1,000 Current liabilities 500 Non-current assets 2,000 Long-term liabilities 1,600 Corporate bonds 750 Long-term bank loans 420 Leasing obligations 430 Owners Equity 900 Total Assets 3,000 Total Liabilities & O.E. 3,000

11 SOME DETAILS OF A BALANCE SHEET BALANCE SHEET EXAMPLE: OWNERS EQUITY Current assets 1,000 Current liabilities 500 Non-current assets 2,000 Long-term liabilities 1,600 Owners Equity 900 Paid-in capital 550 Acc. retained earnings 220 Reserves 130 Total Assets 3,000 Total Liabilities & O.E. 3,000

12 SUMMARY In this video we have had a close look at the balance sheet. The purpose of this video was to familiarise you with the balance sheet, as a preparation for your Finance for Non-Financial Managers course.