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Learning Goal: Students will create and evaluate financial statements.
Learning Goal: Students will create and evaluate financial statements.
Defined: The balance sheet keeps record of assets and claims against those assets, liabilities and stockholder's equity. The balance sheet is NEVER for a specific period, as it represents only one date of information.
What it tells us: The balance sheet tells us the Net worth of company. Assets –Liabilities = Net Worth. The balance sheet also explains short-term & long-term debt obligations.
Structure
Structure
Assets
Current Assets
Cash and Cash Equivalents
Net Receivables
Inventory
Total Current Assets
Property, Plant and Equipment
Goodwill and Intangibles
Total Assets
Liabilities
Current Liabilities
Accounts Payable
Short-term debt
Accrued Expenses
Other Current Liabilities
Total Current Liabilities
Long-term debt
Total Liabilities
Shareholder's Equity
Preferred & Common Stock
Retained Earnings
Treasury Stock
Total Shareholder's Equity
Assets
Assets
Cash and Cash Equivalents
How much cash the company has on hand.
Where is the money is coming from? That is the critical question. Look at the Cash Flow Statement.
Net Receivables
Cash due to company for sales purchased by customers on account
Net receivable are less bad debts that will not be paid. (Example - People who default on their home loan.)
Inventory
Companies need to carry limited inventory amounts to ensure the invested money is not lost.
Before Apple became successful, they carried inventory for 6 months. After hiring Tim Cooks, the current CEO, they reduced inventory to 2 weeks. This freed up a lot of money.
Total Current Assets
Total cash, or can be converted into cash in a year
Property, Plant and Equipment
Original cost less accumulated depreciation
Depreciation is the breakdown of equipment
DCA companies typically have lower amounts here unless the business focuses on real estate acquisition
Total Assets
All the stuff that business has in its possessions.
Return on Total Assets
Net Earnings/Total Assets = Return on Total Assets
This is a great measure of efficiency for companies. How well do they use their assets to generate earnings.
Liabilities
Liabilities
Accounts Payable
Money owed for products/services that the company purchased on account
Accrued Expenses
Liabilities incurred but not yet INVOICED for the current year
Short-term debt
Money owed by the corp. and due within a year
Long-term debt
coming due within one year
Total Current Liabilities
All the money due with the year combined
Current Ratio
Current Assets/Current Liabilities = Current Ratio
A high number means the company is more liquid. Meaning they do not owe as much money in the short run on the assets they have in their possession.
Companies with higher earning power can carry lower amounts of current assets as they know cash will be generated.
Long-term debt
DCA companies have little to no long-term debt
Total Liabilities
Total money owed on assets by the company
Stockholders' Equity
Stockholders' Equity
Preferred & Common Stock
Companies raise money through selling stocks or bonds
Retained Earnings
Net Earnings - Dividends - Stock Repurchases = Retained Earnings
This is an accumulated number
Retained earnings are used to grow the business
Treasury Stock
Repurchased stocks - canceled (never used again)
Shareholder's Equity/Book Value/Net Worth
Total Assets - Total Liabilities = Shareholder's Equity/Book Value/Net Worth
Debt to Equity Ratio
Total Liabilities/Shareholder's Equity = D/E Ratio
Below $.80 is good. For every $1 of Shareholder's Equity we would have $.80 of debt.
This number does vary based on industry
Return on Shareholder's Equity
Net Earnings/Stockholder's Equity = Return on Shareholder's Equity
DCA companies do 25% +
Lesson Information
Lesson Information
Presentation
Presentation
Balance Sheet.pdfVocabulary
Additional Instruction
Student Activity
Part 1
Complete the balance sheet analysis for your company.
Part 2
Read the ROE article and discuss.
Part 3
What is minority interest?
What is the cause for the high minority interest for Berkshire Hathaway?
Is this a good or bad thing for Berkshire Hathaway?
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