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McGraw-Hill /Irwin © 2009 The McGraw-Hill Companies, Inc.
THE BALANCE SHEET THE BALANCE SHEET AND FINANCIAL AND FINANCIAL DISCLOSURESDISCLOSURES
Chapter 3
Slide 2
3-2
The Balance SheetThe Balance Sheet
Limitations: The balance sheet does not
portray the market value of the entity as a going concern nor its liquidation value.
Resources such as employee skills and reputation are not recorded in the balance sheet.
Limitations: The balance sheet does not
portray the market value of the entity as a going concern nor its liquidation value.
Resources such as employee skills and reputation are not recorded in the balance sheet.
Usefulness: The balance sheet
describes many of the resources a company has for generating future cash flows.
It provides liquidity information useful in assessing a company’s ability to pay its current obligations.
It provides long-term solvency information relating to the riskiness of a company with regard to the amount of liabilities in its capital structure.
Usefulness: The balance sheet
describes many of the resources a company has for generating future cash flows.
It provides liquidity information useful in assessing a company’s ability to pay its current obligations.
It provides long-term solvency information relating to the riskiness of a company with regard to the amount of liabilities in its capital structure.
Reports a company’s financial position on a particular date.
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Resources (Assets)
Resources (Assets)
Claims against resources (Liabilities)
Claims against resources (Liabilities)
Remaining claims accruing to owners
(Owners’ Equity)
Remaining claims accruing to owners
(Owners’ Equity)
The Balance SheetThe Balance Sheet
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(In thousands) 2006 2007Assets:Current assets: Cash and cash equivalents 3,544,671$ 6,081,593$ Marketable securities 7,699,243 8,137,020 Accounts receivables, net of allowance 1,322,340 2,162,521 Deferred income taxes, net 29,713 68,538 Income taxes receivable - 145,253 Prepaid revenue share, expenses and other assets 443,880 694,213 Total current assets 13,039,847 17,289,138 Noncurrent assets: Prepaid revenue share, expenses and other assets, noncurrent 114,455 168,530 Deferred income taxes, net., non-current - 33,219 Non-marketable equity securities 1,031,850 1,059,694 Property and equipment, net 2,395,239 4,039,261 Intangible assets, net 346,841 446,596 Goodwill 1,545,119 2,299,368 Total noncurrent assets 5,433,504 8,046,668 Total Assets 18,473,351$ 25,335,806$
Google Inc.Balance SheetDecember 31
Assets are probable future economic benefits obtained or controlled by a particular entity as a result of past
transactions or events.
Assets are probable future economic benefits obtained or controlled by a particular entity as a result of past
transactions or events.
Slide 5
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CashCashCash EquivalentsCash Equivalents
Short-term InvestmentsShort-term InvestmentsReceivablesReceivablesInventoriesInventories
Prepaid ExpensesPrepaid Expenses
CashCashCash EquivalentsCash Equivalents
Short-term InvestmentsShort-term InvestmentsReceivablesReceivablesInventoriesInventories
Prepaid ExpensesPrepaid Expenses
Current AssetsCurrent Assets
Will be converted Will be converted to cash or to cash or
consumed within consumed within one year or the one year or the operating cycle, operating cycle,
whichever is whichever is longer.longer.
Will be converted Will be converted to cash or to cash or
consumed within consumed within one year or the one year or the operating cycle, operating cycle,
whichever is whichever is longer.longer.
Current Current AssetsAssets
Current Current AssetsAssets
Cash equivalents include certain
negotiable items such as commercial paper, money market
funds, and U.S. treasury bills.
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Operating Cycle of a Typical Manufacturing Operating Cycle of a Typical Manufacturing CompanyCompany
Use cash to acquire raw materials
Convert raw materials to finished product
Deliver product to customer
Collect cash from customer
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Noncurrent AssetsNoncurrent Assets
InvestmentsInvestmentsProperty, Plant, & Property, Plant, &
EquipmentEquipmentIntangiblesIntangibles
Other AssetsOther Assets
InvestmentsInvestmentsProperty, Plant, & Property, Plant, &
EquipmentEquipmentIntangiblesIntangibles
Other AssetsOther Assets
Not expected to Not expected to be converted to be converted to
cash or cash or consumed within consumed within one year or the one year or the operating cycle, operating cycle,
whichever is whichever is longer.longer.
Not expected to Not expected to be converted to be converted to
cash or cash or consumed within consumed within one year or the one year or the operating cycle, operating cycle,
whichever is whichever is longer.longer.
Noncurrent Noncurrent AssetsAssets
Noncurrent Noncurrent AssetsAssets
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Noncurrent AssetsNoncurrent Assets
Other Assets
1. Include long-term prepaid expenses and any noncurrent assets not falling in one of the other classifications.
Investments
1. Not used in the operations of the business.
2. Include both debt and equity securities of other corporations, land held for speculation, noncurrent receivables, and cash set aside for special purposes.
Property, Plant, and Equipment
1. Are tangible, long-lived, and used in the operations of the business.
2. Include land, buildings, equipment, machinery, and furniture as well as natural resources such as mineral mines, timber tracts, and oil wells.
3. Reported at original cost less accumulated depreciation (or depletion for natural resources).
Intangible Assets
1. Used in the operations of the business but have no physical substance.
2. Include patents, copyrights, and franchises.
3. Reported net of accumulated amortization.
©
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(In milions) 2006 2007Liabilities:Current liabilities: Accounts payable 211,169$ 282,106$ Accrued compensation & benefits 351,671 588,390
266,247 465,032 Accrued revenue share 370,364 522,001 Deferred revenue 105,136 178,073 Total current liabilities 1,304,587 2,035,602 Long-term liabilities: Deferred revenue, long-term 20,006 30,249 Deferred income taxes, net 40,421 - Income taxes payable, long-term - 478,372
68,497 101,904 Total long-term liabilities 128,924 610,525 Total liabilities 1,433,511$ 2,646,127$
Google Inc.Balance SheetDecember 31
Other long-term liabilities
Accrued expenses and other current liabilities
Liabilities are probable
future sacrifices of
economic benefits
arising from present
obligations of a particular
entity to transfer
assets or provide
services to other entities as a result of
past transactions
or events.
Liabilities are probable
future sacrifices of
economic benefits
arising from present
obligations of a particular
entity to transfer
assets or provide
services to other entities as a result of
past transactions
or events.
Slide 10
3-10
Current LiabilitiesCurrent LiabilitiesAccounts Payable
Notes PayableAccrued Liabilities
Unearned RevenuesCurrent Maturities of Long-Term Debt
Accounts PayableNotes Payable
Accrued LiabilitiesUnearned RevenuesCurrent Maturities of Long-Term Debt
Obligations expected to be satisfied through current
assets or creation of other current liabilities within one year or the operating cycle,
whichever is longer.
Obligations expected to be satisfied through current
assets or creation of other current liabilities within one year or the operating cycle,
whichever is longer.
Current Liabilities
Current Liabilities
Slide 11
3-11
Long-term LiabilitiesLong-term Liabilities
Long-term Notes Mortgages
Long-term BondsPension ObligationsLease Obligations
Long-term Notes Mortgages
Long-term BondsPension ObligationsLease Obligations
Obligations that will not be
satisfied within one year or
operating cycle, whichever is
longer.
Obligations that will not be
satisfied within one year or
operating cycle, whichever is
longer.
Long-Term Liabilities
Long-Term Liabilities
Slide 12
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(In thousands, except par value per share) 2006 2007Stockholders' equityClass A and Class B common stock, $0.001 par value per share: 9,000,000 shares authorized; 293,027 (Class A 201,268, Class B 91,759) and par value of $293 (Class A $201, Class B $92) and 308,997 (Class A 277,670, Class B 81,327) and par value of $309 (Class A $228, Class B $81) shares issued and outstanding 309$ 313$ Additional paid-in capital 11,882,906 13,241,221 Accumulated other comprehensive income 23,311 113,373 Retained earnings 5,133,314 9,334,772 Total stockholders' equity 17,039,840$ 22,689,679$
Google Inc.Balance SheetDecember 31
Shareholders’ Equity is the residual interest in the assets of an entity that remains after deducting
liabilities.
Shareholders’ Equity is the residual interest in the assets of an entity that remains after deducting
liabilities.
Slide 13
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Shareholders’ EquityShareholders’ Equity
Capital Stock
Capital Stock
Retained Earnings
Retained Earnings
Accumulated Other Comprehensive IncomeAccumulated Other Comprehensive Income
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Disclosure NotesDisclosure Notes
Summary of Significant
Accounting Policies
Conveys valuable information about the company’s choices from
among various alternative accounting methods.
Subsequent EventsA significant development that takes place after the company’s
fiscal year-end but before the financial statements are issued.
Noteworthy Events and Transactions
Transactions or events that are potentially important to evaluating a company’s financial statements,
e.g., related parties, errors and irregularities, and illegal acts.
Slide 15
3-15
Management Discussion and AnalysisManagement Discussion and Analysis
Provides a biased but Provides a biased but informed perspective of informed perspective of
a company’s a company’s operations, liquidity, operations, liquidity,
and capital resources.and capital resources.
Provides a biased but Provides a biased but informed perspective of informed perspective of
a company’s a company’s operations, liquidity, operations, liquidity,
and capital resources.and capital resources.
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Management’s ResponsibilitiesManagement’s Responsibilities
Preparing the financial statements and other information in the annual report.
Maintaining and assessing the company’s internal control procedures.
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Auditors’ ReportAuditors’ Report
Expresses the auditors’ opinion as to the fairness of
presentation of the financial statements in conformity with
generally accepted accounting principles.
Must comply with specifications of the AICPA and the PCAOB.
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Auditors’ OpinionsAuditors’ Opinions
Unqualified
Issued when the financial statements present fairly the financial position, results of
operations, and cash flows are in conformity with GAAP.
QualifiedIssued when there is an exception
that is not of sufficient seriousness to invalidate the financial statements as a whole.
AdverseIssued when the exceptions are so serious that a qualified opinion is
not justified.
DisclaimerIssued when insufficient
information has been gathered to express an opinion.
Slide 19
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Compensation of Directors & Top ExecutivesCompensation of Directors & Top Executives
Proxy Statement Information Summary compensation tableTable of options grantedTable of options holdings
A proxy statement is sent each year to all shareholders, usually in the
same mailing with the annual report.
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Using Financial Statement InformationUsing Financial Statement Information
Comparative Financial Statements
Allow financial statement users to compare year-to-year financial
position, results of operations, and cash flows.
Horizontal Analysis
Expresses each item in the financial statements as a
percentage of that same item in the financial statements of another
year (base amount).
Vertical Analysis
Involves expressing each item in the financial statements as a percentage of an appropriate corresponding total, or base
amount, within the same year.
Ratio AnalysisAllows analysts to control for size differences over time and among
firms.
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Liquidity RatiosLiquidity Ratios
=Current ratioCurrent assets
Current liabilities
Measures a company’s ability to satisfy its short-term liabilities
=Acid-test ratioQuick assets
Current liabilities
Provides a more stringent indication of a company’s ability to pay its current
liabilities
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Financing RatiosFinancing Ratios
=Debt to equity ratio
Total liabilities
Shareholders’ equity
Indicates the extent of reliance on creditors, rather than owners, in providing
resources
=Times interest earned ratio
Net income + Interest expense + Taxes
Interest expense
Indicates the margin of safety provided to creditors
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Appendix 3: Reporting by Operating Appendix 3: Reporting by Operating SegmentSegment
Reportable Operating Segment Characteristics
Engages in business activities from which it may earn revenues
and incur expenses.
Many companies operate in several business segments as a strategy to achieve growth and to
reduce operating risk through diversification.
Segment reporting facilitates the financial statement analysis of diversified companies.
Operating results are regularly reviewed by the enterprise’s chief operating decision maker to make decisions about resources to be
allocated to the segment and assess its performance.
Discrete financial information is available.
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What Amounts Are Reported By An Operating What Amounts Are Reported By An Operating Segment?Segment?
General information about the operating segment.
Segment profit or loss, segment assets, and the basis of measurement.
Reconciliations of the totals of segment
revenues, reported profit or loss, assets, and other
significant items.
Interim period information.
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Segment ReportingSegment Reporting
Reporting by Geographic Area
SFAS 131 requires an enterprise to report certain geographic
information unless it is impracticable to do so.
Information About Major Customers
Revenues from customers generating 10% or more of the
revenue of an enterprise must be disclosed.
McGraw-Hill /Irwin © 2009 The McGraw-Hill Companies, Inc.
End of Chapter 3End of Chapter 3
