Balance Sheet
Financial analysis is critical to determining the intrinsic value of a company. Analysts, hedge funds, institutional investors and retail investors alike all use various forms of information to determine a fair price to pay for a security. This information is generally acquired through the financial statements of the particular company being researched. In addition to the many forms of information gathering within the market, there are also many philosophies that determine the underlying characteristics of individual investors. First, there is a value philosophy predicated on locating stocks well below their intrinsic value with a predetermined margin of safety to account for errors of judgment. This philosophy attempts to identify undervalued securities. Likewise, there is a growth philosophy which is focused primarily on the future growth trends within a particular industry. There are many philosophies that govern investment behavior with these two constituting the vast majority. No matter what the…...
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References:
1) Modigliani, Franco and Merton H. Miller. 1958. "The Cost of Capital, Corporation Finance and the Theory of Investment." The American Economic Review, vol. 48, pp. 261-297.
2) Williams, Jan R.; Susan F. Haka, Mark S. Bettner, Joseph V. Carcello (2008). Financial & Managerial Accounting. McGraw-Hill Irwin. pp. 32- 57. ISBN 978-0-07-299650- 0
3) Daniels, Mortimer (1980). Corporation Financial Statements. New York: New York: Arno Press. pp. 9 -- 18. ISBN 0-405-13514-9.
4) Epstein, Barry J, Eva K. Jermakowicz (2007). Interpretation and Application of International Financial Reporting Standards. John Wiley & Sons. pp. 923-942. ISBN 978-0-471-79823-1.
Balance Sheet
a) Using the 2012 Annual eport, which reflects the fiscal year ended December 31, 2012, Facebook lists short-term liabilities on its balance sheet of $1.052 billion, split between several categories. The largest of these is the accrued expenses, followed by the capital lease obligations. The long-term debt on the company's balance sheet is $1.50 billion with the total long-term liabilities being $2.296 billion.
b) The market capitalization of Facebook is $107 billion, according to Yahoo Finance.
The debt ratio of the company, using the book value of the company's equity, is 3348 / 15103 = 22.1%. The debt-to-equity ratio is 3348 / 11755 = 28.6%.
For short-term liabilities only, the STL Debt ratio is 1052 / 15103 = 6.9% and the STL/Equity ratio is 1052 / 11755 = 8.9%. The LTD debt ratio is 2296 / 15103 = 15.2% and the LTL/Equity ratio is 2295 / 11755 = 19.5%.
Balance Sheet
Question/Statement: Select either the balance sheet or income statement and explain how the use of it may be applied to your everyday life.
The balance sheet may be applied to everyday life in that it can be used to assess past performance, as well as to plan for future undertakings. If, for example, an individual used one's birthday as the balance sheet statement date, then the balance sheet would show assets accumulated up to that point, such as one's bank accounts, furniture, computers, 401K, equity in one's house and/or car and so forth. The individual's liabilities would include one's mortgage and car payments, credit card balances, student loans. The difference between total assets and total liabilities equals the individual's net worth.
The balance sheet may be used to evaluate an individual's performance in everyday life, for example, to see how well certain goals have been met. If, for example, an individual…...
alance Sheet Adjustments
The updated balance sheet for Module 2 is as follows:
alance Sheet
Assets
Current Assets
Cash
Accounts Receivable
Inventory
Property, Plant, and Equipment
Equipment
Total Assets
Liabilities and Stockholder's Equity
Current Liabilities
Accounts Payable
Long-Term Debt
Long-Term Debt
Total Liabilities
Stockholder's Equity
Common Stock
Paid In Capital
Retained Earnings
Total Stockholder's Equity
Total Liabilities & Stockholder's Equity
ecause the customer did not commit to the purchase, the Sales account would have been credited the 45,500 and the inventory account debited 45,500 to correct the original transaction. The computation of the cost of goods sold affects the income statement, not the balance sheet. ecause the ending inventory was computed by using a physical account, the ending inventory would have adjusted itself to the 25,000 for the final balance sheet amount; therefore, no adjustment is needed (Kieso, 2008, p. 1175).
Managers often pay dividends before an IPO to keep from sending negative messages to the investing community or to adjust assets that have become overvalued from stock prices (Martin, 2009). The amount of…...
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Bibliography
Kieso, D.W. (2008, p. 1175). Intermediate Accounting I, II, and III, 12 ed., . Hoboken, NJ: John Wiley & Sons, Inc.
Capital structure decisions can be deliberate as well, yet an analyst without knowledge of the firm's intentions could make an entirely different determination about the validity of the firm's capital structure if based only on the balance sheet. At a minimum, the income statement is also required and in most cases much more information than that is needed to make an accurate assessment of the firm's financial condition (Kennon, 2010).
Essentially, the balance sheet is a useful tool for analysis, but it must be taken into context with a wide variety of other information, not all of which will be in the notes. In that regard, financial statements are limited and the analyst is recommended to consider those limitations when undertaking an analysis of the balance sheet.
orks Cited:
Kennon, J. (2010). hat the balance sheet can and cannot tell you. About.com. Retrieved January 28, 2010 from http://beginnersinvest.about.com/od/analyzingabalancesheet/a/putting-together-balance-sheet.htm...
The attention on cases of impairment has generally been reduced, but this is expected to increase with the more emphasis placed on financial analysis and audits, a need generated by the contemporaneous economic crisis (Wayman, 2009). As an addition then, there have been developed complementary regulations. IFS 3 for instance, states that while amortisation tests will not be conducted, impairments tests will still be performed. IAS 39 states that the interest income related to impaired credits would be recognized starting with 2005; more net present value calculation on impaired loans will be conducted (Nordea, 2005).
Impairment can be observed when the issuer encounters severe financial difficulties; he breaks the contractual terms with his partners; he becomes involved in dubious borrowing; it becomes likely that the company will declare bankruptcy or will be purchased by another entity; observation of financial statements. Impairment is generally measured with the aid of assets at…...
Apple and Philips Balance Sheet Analysis
This text examines the balance sheets of both Apple and Philips in greater detail. Amongst other things, the paper will identify a number of differences between IFS and U.S. GAAP as far as valuation approaches are concerned. Further, in addition to discussing a number of balance sheet items, the paper will also highlight the main differences between the balance sheets of the two companies.
Valuation Differences: U.S. GAAP vs. IFS
There are several differences that exist between IFS and U.S. GAAP. This is more so the case when it comes to the valuation of inventory, asset valuation as well as revenue recognition. The two differences I cite herein are largely in regard to valuation. To begin with, assets revaluation is not permitted under U.S. GAAP (Ernst and Young, 2011). However, when it comes to IFS, "revaluation is a permitted accounting policy election for an entire class of…...
This paper examines off-balance sheet items and their treatment in financial systems analysis. Balance sheets consist of information about a company's assets, liabilities, and owner's equity. Off-balance sheet information is described as any activity a company can engage in but not report on its balance sheet. Frequently these activities relate to liabilities incurred by companies. In some cases companies that attempt to keep information off-balance sheet may do so illegally, intending to present a stronger financial position (Thomason, 2011).
Off-Balance Sheet Accounting
Off-balance sheet accounting is a form of accounting for assets, debts or other financing activities that are not included on a company's main balance sheet. A company's financial wealth is typically determined by the total assets minus total liabilities listed on the balance sheet; if this number is positive, then the company has created financial wealth (Vitez, 2010).
Generally accepted accounting principles (GAAP) give companies the…...
Balance Sheet Financing
The SEC's definition of "off-balance sheet arrangement" includes any contractual arrangement to which an unconsolidated entity is a party under which the registrant has any obligation under certain guarantee contracts, a retained or contingent interest in assets transferred to an unconsolidated entity or similar arrangement that serves as credit, liquidity or market risk support to that entity for such assets; any obligation under certain derivative instruments; any obligation under a material variable interest held by the registrant in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to the registrant, or engages in leasing, hedging or research and development services with the registrant. [footnoteRef:1] [1: http://www.sec.gov/rules/final/33-8182.htm]
PROBLEM, JUSTIFICATION, LEGALITIES and ETHICS:
Although off balance sheet financing is legal, several technicalities may be exploited, substantial liabilities may be removed from the balance sheet and certain obligations may not be disclosed at all. This may create a…...
MT Balance Sheet
a) The most recent balance sheet for al-Mart comes from the company's 8-K for the year ended January 31, 2011. The short-term liabilities for al-Mart were $58.484 billion. The long-term liabilities were $53.637 billion. Long-term debt is a component of the long-term liabilities and is listed at $43.482 billion.
b) At that point in time, the number of shares outstanding was 3.561 billion. The most recent price per share is $51.96. The market value of the equity in the company therefore is $185.03 billion.
The debt ratio is the total liabilities divided by the total liabilities + equity (aka total assets). This is $112.121 / $180.663 = 62%.
The debt-to-equity ratio is the total liabilities divided by the equity. This is $112.121 / $68.542 = 1.64
I consider these values to be within the acceptable range. They are closer to being too large, however. The company is highly leveraged, which implies a…...
Balance Sheet Instruments
Describe how each of the "off-balance sheet instruments" (swaps, forwards, futures, options) helps in mitigating foreign exchange risk.
A swap is the exchange of one security for another security because investment climate has changed. Recently, swaps have grown to include currency swaps and interest rates swaps, to take account of changing exchange rates and thus mitigating risk. ("Swap," Investopedia) Similarly, in currency forward contracts, the contract holders are obligated to buy or sell the currency at a specified price, at a specified quantity, and on a specified future date. These contracts cannot be transferred and thus prevents a potential loss, should exchange rates change and render the contract less profitable than originally intended for one of the parties involved. ("Currency Forward," Investopedia) Futures are financial contracts that obligate the buyer (seller) to purchase (or sell and deliver) financial instruments or physical commodities at a future date, regardless of…...
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Works Cited
"Currency Forward." (2005) Investopedia. Retrieved 6 Nov 2005 at 'Futures." (2005) Investopedia. Retrieved 6 Nov 2005 at http://www.investopedia.com/terms/f/futures.asp 'Swap" (2005) Investopedia. Retrieved 6 Nov 2005 at http://www.investopedia.com/terms/s/swap.asp http://www.investopedia.com/terms/c/currencyforward.asp
This indicates that none is capable of outperforming the market with the use of something that 'that everybody else knows'. Still there exists a number of financial analysis those study the past trend of stock prices and the trend in trading volume as an effort to generate profit. Such technical analysis is viewed by Efficient Market Hypothesis as not effective in forecasting the variations in the fluctuations of future prices. The semi-strong form of Efficient Market Hypothesis reflects that all openly available information is already integrated into the asset prices. Speaking other way, all openly available market information is completely reflected in the current price of the securities.
The public information depicted not only the past prices but also includes the data published in the financial statements of the company, the declarations made in the company, economic and others factors. It also specifies that none is capable of outperforming the…...
Maloney, Dennis. J. Accounting for Stock Options: Change at Whose Expense? New Hampshire Business Review. May, 2002. Retrieved at Accessed on 30 November, 2004http://www.gcglaw.com/resources/bs/stock.html.
Financial Analysis
The balance sheet shows that most line items have a change that is greater that is 5%. This report will attempt to explain the wild fluctuations in the numbers from one year to the next.
With respect to the current assets, the decline in the cash position can probably be explained by the increase in the inventories and the accounts receivable. They are having problems collecting from their customers, apparently, and this has led to a situation where the receivables turnover has decline substantially. The result is that the asset remains as accounts receivable, instead of having been converted to cash. Patton-Fuller's own business might be in decline as well -- revenues are up but inventories are as well. This might point to poor inventory management, since without a decline in revenues the hospital has allowed its inventories to more than double.
With respect to the long-term assets, combined with the…...
Merck discloses on its balance sheet the following components of stockholders' equity: capital stock, retained earnings, additional paid-in capital, treasury stock and accrued gains/losses. Novartis reports retained earnings, additional paid-in capital and treasury stock only. Neither of these companies has any preferred shares outstanding.
Both companies report treasury shares. Merck notes in its annual report that the Board "approved the purchase of up to $5.0 billion of Merck's common stock for its treasury. The treasury stock purchases have no time limit and will be made over time on the open market, in block transactions or in privately negotiated transactions." There are no reasons given for the purchase of treasury stock but there have been regular purchases of treasury stock over the past several years at Merck.
For its part, Novartis does outline in its annual report the point of its treasury stock purchases. It notes that "These shares will be…...
Since the Inventory was an actual $75,000, Inventory, Retained Earnings, and Net Income was adjusted with a decrease of $3,650. Cost of Goods Sold was adjusted with an increase of $3,650. The customer's check of $10,000 adjusted cash with an increase of $10,000 and Accounts Receivable with a decrease of $10,000.
"A business that shows increased retained earnings balances is definitely making a profit because accounting income flows directly through the accumulated profit account." (Codjia). The net income is added to the retained earnings. Retained earnings increased the amount of net income. The company is making…...
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Impact of Accounting Methods on Financial Statements
Accounting methods play a crucial role in the preparation of a company's financial statements. The choice of accounting method directly influences the recognition, measurement, and reporting of financial transactions and events. As a result, different accounting methods can significantly impact the presentation of a company's financial position and performance.
Income Statement
Revenue Recognition: The revenue recognition method determines when revenue is recorded. The cash basis method recognizes revenue only when cash is received, while the accrual basis method recognizes revenue when earned, regardless of cash receipt. This timing difference can affect the timing of revenue....
Efficient Budgeting and Financial Management in Building Finance Departments
Ensuring efficient budgeting and financial management is crucial for the financial health and operational success of buildings. Finance departments play a vital role in implementing strategies and processes that optimize financial resources and ensure accountability. Here are key measures employed by building finance departments to achieve this objective:
1. Strategic Budgeting:
Finance departments develop comprehensive budgets that align with the overall building strategy and prioritize capital investments. Budgets are created using detailed forecasts and historical data analysis, considering factors such as occupancy rates, maintenance costs, and market trends. Scenario planning and sensitivity analysis....
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