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TEST 1/ LECTURE 2: REVIEW OF BASIC FINANCIAL INSTRUMENTS DEBT, EQUITY, AND THE BALANCE SHEET: A Quick Review of Financial Statements The Balance Sheet : Provides a “snap-shot” of the firm’s status (its assets and liabilities) at a given point in time. Balance sheet is where a firm is right now Assets = Liabilities + Equity Assets = Use of Funds how do I invest $ Liabilities = Sources of Funds borrow from bank? Issue stock? Where did $ come from Assets 2010 2009 Current Assets Cash 23.2 20.5 Accounts Receivable 18.5 13.2 Inventory 15.3 14.3 Total Current Assets 57 48 Long-term Assets Net Plant, Property, and Equipment 113.1 80.9 Total Long-term Assets 113.1 80.9 Total Assets 170.1 128.9 Total Assets gives an approximate value of what the firm’s assets are worth at some given time. It is an approximate value because an asset’s value will usually be a “book value”, not “market value.” Liabilities and Shareholder Equity 2010 2009 Current Liabilities Accounts Payable 29.2 26.5 Notes Payable 5.5 3.2 Total Current Liabilities 34.7 29.7 Long-Term Liabilities Long-term Debt 113.2 78.0 Total Long-term liabilities 113.2 78.0
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Total Liabilities 147.9 107.7 Shareholder Equity 22.2 13.2 Total Liabilities and 170.1 128.9 Shareholder Equity does not equal the value of a firms stock. It’s a historical number, the selling price of a stock is the current value of the company. Shareholder equity represents the “book value” of the firm’s equity. This is quite different from the “market value” of the firm’s equity. Keep in mind that the balance sheet represents a historical value of the firm’s assets, while the stock price of the firm’s stock represents the current value investors place on the firm’s future. The Income Statement : A statement summarizing the firm’s revenues and expenses over an accounting period, generally a quarter or a year. How are the role of debt and equity reflected on the firm’s income statement? Global Corporation
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This note was uploaded on 01/24/2012 for the course FINA 3000 taught by Professor Laplante during the Spring '08 term at UGA.

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