1-4
FINANCIAL STATEMENT ANALYSIS
·
N
ET
F
IXED
A
SSETS
difference between
G
ROSS
F
IXED
A
SSETS
and
D
EPRECIATION
. This is often called the book value of the fixed
assets.
Assets listed
in order of
liquidity
The assets on the Balance Sheet are listed in the order of their
liquidity,
which is the amount of time it would typically take to
convert them to cash. For example, it is much easier to convert
finished products in inventory to cash than to convert a manufacturing
plant to cash.
A company may use more detail in reporting its assets on the Balance
Sheet. For example, a company may list its property, plants, and
equipment separately or break out its accounts receivable or inventories
into more specific accounts. The basic concepts of reporting the
company's financial position at a point in time remain the same regardless
of the amount of detail. Remember, only the cash account represents
actual money. A company expects the other assets to produce cash
eventually, but the amount of cash produced may be higher or lower than
the values presented on the Balance Sheet.
Liabilities (Debt) and Equity
Capital used to
acquire assets
To acquire assets, it is necessary for the company to raise capital to
pay for them. Capital comes in two basic forms: debt and equity.
Debt vs. Equity
Debt: money
owed by the
company
In Balance Sheet analysis, debt is synonymous with liability. It
represents money owed by the company to its creditors. Creditors
expect the company to repay debt, with interest, at some specified
future date. There are many kinds of debt: long-term and short-term,
zero-coupon and interest-bearing, fixed rate and floating rate,
secured and unsecured, and so on. We will discuss these in greater
detail later in this workbook.