Introduction to Financial Statements and
Focus on the Balance Sheet – Part 1
Prof. Dr. Garen Markarian
Balance Sheet
Financial Statements: What are they for?
Summarizes a company’s financial position
Balance Sheet What is owned and what is owed
Income Statement Describes a company’s financial performance for any current year
or Profit & Loss Statement Whether value was created or destroyed
Shows a firm’s cash transactions
Cash Flow Statement
How much cash was generated/disbursed from various activities
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Balance Sheet
Financial Statements: Who Are They for?
Investors Board of Directors Labor Unions
Creditors Competitors Lawyers
Governments/
Managers Etc...
Regulators
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Balance Sheet
Financial Statements: Practical Uses
Evaluate past Executive
performance compensation
Assess future prospects Negotiations
Credit decisions Lawsuits Etc…
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Balance Sheet
Usage of Accounting Numbers in
Compensation Schemes: Microsoft
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Balance Sheet
Financial Statements: Overview
The Balance Sheet is a “Snapshot” of The Income Statement and the
financial condition at a given date Statements of Cash Flows are “Motion Pictures”
Nestlé
What is the financial condition How well did the organization
of the organization on a given do during a given period?
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Balance Sheet
Desirable Qualities of Accounting Information
Unbiased Consistent
Timely Comparable
Relevant Verifiable Can one system
achieve this?
Reliable Complete
If so, what are the trade-offs?
Clear Etc…
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Balance Sheet
The Regulators
Congress
SEC
FASB
AICPA
Industry Practice
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Balance Sheet
The Most Important Equation You Need to Know
Reminder: The Balance Sheet is a “Snapshot” of the financial situation at a given date.
Assets Liabilities Stockholders’ Equity
Economic resources Economic obligations
Owners’ residual
with probable future to outsiders,
interest
benefits e.g., creditors
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Balance Sheet
Nestlé Group
Balance Sheet (1/2)
As of December 31, 2023
Assets CHF 126,550
Liabilities CHF 90,163
Stockholders’
CHF 36,387
Equity
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Balance Sheet
Nestlé Group
Balance Sheet (2/2)
As of December 31, 2023
Assets CHF 126,550
Liabilities CHF 90,163
Stockholders’
CHF 36,387
Equity
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Balance Sheet
Assets Nestlé Group, as of December 31, 2023
Assets: Economic resources with
probable future benefits
Current assets are a company's short-term assets;
those that can be liquidated quickly and used for a
company's immediate needs (within a year).
Current assets are separated from other resources
because a company relies on its current assets to fund
ongoing operations and pay current expenses.
Non-current assets are those considered long-term,
whose full value will not be recognized for at least a
year.
Non-current assets are those not classified as current.
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Balance Sheet
Liabilities As of December 31, 2023
Liabilties: Economic obligations to outsiders,
e.g., creditors
Current liabilities are a company's short-term
financial obligations that are due within one year or a
normal operating cycle.
Current liabilities are typically settled using current assets,
which are assets that are used up within one year.
Long-term (non-current) liabilities are obligations
listed on the balance sheet not due for more than a
year.
Non-current liabilities can be considered as any
liabilities which are not classified as current.
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Balance Sheet
Stockholders’ Equity
Stockholders’ Equity: Owners’ residual interest Nestlé Group, as at December 31, 2023
Share capital (Common stock) refers to amounts received by the reporting company from transactions with its
shareholders.
Retained earnings are the cumulative net earnings or profits of a company after accounting for dividend
payments.
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Balance Sheet
The Balance Sheet MUST Always Balance!
Meta Platforms Inc., as of December 31, 2023
(in millions, except the number of shares and par value)
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Balance Sheet
The Balance Sheet MUST Always Balance!
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Balance Sheet
A ≠ L + SE !!
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Balance Sheet
The Balance Sheet MUST Always Balance!
Well, well…
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Accounting is FUN
Accounting is SEXY
Let’s PARTY!
