1.01 BS/Stmt of Financial Position - Video Lecture

What is the formal name of a balance sheet?

Statement of financial position 

The balance sheet reports resources of a company at

a point in time

On the balance sheet, a company discloses two things:

Economic resources

Manner of financing/acquiring the resources

Acronym for assets

DICE

Derived from past events

Include probably benefits

Controlled by an entity

Economic resources that are expected to generate future economic benefits.

Explain how each balance sheet categorty is presented

Assets - liquidity 

1. If it matures within 3 months, its pretty much cash/cash cash equivalent

Liabilties - maturity

1. CA - CL = WC 

Equity - permanence and ownership rights

How would you asses short term risk?q

You determine this with the current ratio

• How much of your current assets exceed your current liabilities

• Asses short-term risk 

If current assets exceed current liabilties

Working capital goes up, short term risk goes down.

Whats the downside for having high working capital?

Return on assets may not be as great

Less risk you assume

Lower your rate on return of assets