Onowner creditor or debt financing is borrowed money

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_-onowner (creditor or debt) financing is borrowed money. e distinguish between these two financing sources for a reason: borrowed money entails a legal obligation to repay amounts owed, and failure to do so can result in severe consequences for the borrower. Equity financing entails no such legal obligation for repayment. The relative proportion of nonowner (liabilities) and owner (equity) financing is largely determined by a com- pany's business model. This is evident in the graph to me side, again citing many of the companies we feature focus companies in this book. Google is a relatively new company that is expanding into new markets. Its busi- ness model is, therefore, more risky than that of a more established company operating in relatively stable markets. Google cannot afford to take on additional risk of higher aonowner financing levels. On the other hand, Caterpillar's cash flows are relatively stable. It can operate with more nonowner financing. Relative Proportion of Liabilities and Equity ~~_r:.II~_r:.II~_r:.II~_r:.II_ Equity II Liabilities 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%I'---_,_-,-----r--r-~-__,_-r__,_~ ",10 ~ ~ 0- o~ ~IO 10'0 i$"'o ",10 ,?-<::f< io.<l i$""'If ,i~ "'"~c; 'If<$' .~<:' ~IO 0 0<$ i)c-IO cP 10 ')0 '!7 (j ~'?' 0"'" (j o o<$' '!7 io. ~IO ,,0 ~ o~ {:l;s' Go!? ~c; « .... 0 0" ')(§' '? IFRSINSIGHT Balance Sheet Presentation and IFRS Balance sheets prepared under IFRS tend to classify accounts in reverse order of liquidity (lack of nearness to cash). For example, intangible assets are typically listed first and cash is listed last among assets. Also, equity is typically listed before liabilities, where liabilities are again listed in order of decreasing liquidity. come Statement An income statement reports on a company's performance over a period of time and lists amounts for revenues (also called sales) and expenses. Revenues less expenses yield the bottom- line net income amount. Berkshire Hathaway's income statement is in Exhibit 104. Refer to its !ncome statement to verify the following: revenues = $136,185 million; expenses = $123,218 million; and net income = $12,967 million. Net income reflects the profit (also called earnings) - owners for that specific period. I Exi-IISi:r 1'~4'. BERKSHIRE HATHAWAY I Income Statement I Report amounts over For Year Ended December 31, 2010 II( a period of time , Revenues ................................... $136,185 Goods or services I Expenses ................................... 123,218 provided to customers Net income (loss) ............................. $ 12,967 Costs incurred to I generate revenues Income Statement ($ millions) _Ianufacturing and merchandising companies typically include an additional expense account, called cost of goods sold (or cost of sales), in the income statement following revenues. It is also mmon to report a subtotal called gross profit (or gross margin), which is revenues less cost of goods sold. The company's remaining expenses are then reported below gross profit. This income statement layout follows: Revenues ~ - Cost of goods sold Cost of materials, labor and overhead Gross profit II( I Revenues less cost of goods sold - Expenses Net income (loss) Expenses other than cost of good sold
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Operating Activities Operating activities use company resources to produce, promote, and sell its products and ser- vices. These activities extend from input markets involving suppliers of materials and labor to
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