Balance Sheet

def. Balance Sheet is a table showing all the firm’s assets and liabilities. Example. where the terms are standardized by Accounting standards - Wikipedia like GAAP (U.S.) or IFRS (int’l)

• Assets
  • Current Assets (=liquidated within one year)
    • Cash & Equivalents: Liquid assets on hand by a firm
    • Recieveables: unofficial transactions, e.g., regular grocery purchases, etc.
    • Inventories: Items not sold
  • Non-current Assets (=long-term held assets)
    • Property, Plant, & Equipment (PP&E), i.e. Durable capital assdets
• Liabilities
  • Current Liabilities
    • Payables: unofficial transactions (counterpart to Recieveables)
    • Short-term borrowings: quick borrowings, credit line from bank, commercial paper, etc.
  • Non-current Liabilities
    • Long-term debt: corporate bonds, bank lones
• Stockholder’s Equity: money received by purchasers of stock
  • This is not the market price of stock. This is equity price at time of issuance (book value)
  • But during stock buybacks, firms buy at market price, so stockholder’s equity will cancel out at a different rate than during book valueation
  • Retained Earnings are profits held and not paid to equity owners for reinvestment

Assets and (liabilities + equity) must always sum to zero. When assets depreciate, the equity decreases accordingly

Note that: def. Book Value (=Total Equity) is by definition Assets less Liabilities

• This is totally separate from the Market Value ⇒ hard to measure the “value” of a firm
• soft skills (e.g. brand image, reputation) are not reflected in book value (the market may better reflect intangibles). Remark