Investing activities balance sheets are organized

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Investing Activities Balance sheets are organized like the accounting equation. Investing activities are represented by the company's assets. These assets are financed by a combination of nonowner financing (liabili- ties) and owner financing (equity). r EXH"-SIT 1~3- - Balance Sheet ($ millions) BERKSHIRE HATHAWAY Report amounts at Balance Sheet* a point in time December 31, 2010 I I - Assets~.~----------------------------------------------~ Cash . Noncash assets . Total assets . Investing $ 38,227 334,002 $mm~ ~==~ Liabilities and equity I . mancmq Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $209,295 .... , Equity Contributed capital . . . . . . . . . . . .. . . Retained earnings ...... .... ....... •..•... Other equity! . Total equity . Total liabilities and equity. . . . . . .. . . Total resources 37,541 99,194 26,199 162,934 $372,229 l I Nonowner claim on resources Owner claim on resources • Financial statement titles often begin with the word consolidated. This means that the financial statement includes a parent company and one or more subsid- iaries, companies that the parent company owns. t For Berkshire Hathaway, other equity includes accumulated other comprehensive income and noncontroliing interests. For simplicity, Berkshire Hathaway's balance sheet in Exhibit 1.3 categorizes assets into cash and noncash assets. Noncash assets consist of several asset categories (Module 2 explains the composition of noncash assets). These categories are listed in order of their nearness to cash. For example, companies own a category of assets called inventories. These are goods that the com- pany intends to sell to its customers. Inventories are converted into cash when they are sold within a short period of time. Hence, they are classified as short- term assets. Companies also report a category of assets called property, plant and equipment. This category includes a company's office buildings or manufacturing facilities. Prop- erty, plant and equipment assets will be held for an extended period of time and are, therefore, generally classified as long-term assets. The relative proportion of short-term and long-term assets is largely determined by a company's business model. This is evident in the graph to the side that depicts the relative proportion of short- and long-term assets for several companies that we feature in this book. Companies such as Cisco and Google require little investment in long-term assets. On the other hand, Comcast and Procter & Gamble require a large investment in long-term assets. Although managers can influence the relative amounts and proportion of assets, their flexibility is somewhat limited by the nature of their industries. Relative Proportion of Short-Term and Long-Term Assets Short-Term Assets Long-Term Assets 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% _ _ _ _ ---" V , "'" 0% ",'0 ~ "" 0- 0<:- ",'0 '0'" ~'" ",'0 $1<:1 .~'1f v'?>'" '0<:1 ~Cj ~ ~<:' <}'O 00<:$ '?' ",'0,<:1 0(:' '0<::5 -:,i§:' 0'1f ,,'?'" e:,"" (j (;'1f CJ 0(:' 'l;- 'l;- '0'" vO ~ 0<:- cl is'~ cP ~Cj ,0 0'::; -:,i§:' ~ Cj Financing Activities Assets must be paid for, and funding is provided by a combination of owner and nonowner financing. Owner (or equity) financing includes resources contributed to the company by its
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Module 1 I Framework for Analysis and Valuation 1-12 owners along with any profit retained by the company.
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