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CORPORATE FINANCE

Assignment - 1
Balance Sheet Terms
Assets:
The property or resources owned by the business. Assets are frequently listed in two
categories, current and non-current.
Current Assets: Cash or other assets that can be converted to cash through the
normal operations of the business during the year. That is, checking and savings
accounts, accounts receivable, inventory held for sale, securities, stocks and bonds,
and the cash value of life insurance.
Non-Current Assets: Sometimes called fied assets or long term assets. !on-
current assets are those assets that are not intended to be liquidated during the
course of the business year. "ncludes machinery, breeding stock, not readily
marketable stocks #like stock in cooperatives and capital credit accounts$, long-term
contracts receivable, buildings and other permanent structures, and land.
Balance Sheet:
"t is also called as net worth statement or financial statement. The balance sheet
reveals a company%s assets, liabilities and shareholders% equity #net worth$. "t reveals
to a business owner, or a potential lender, the overall financial &health% of the
business from an equity standpoint, usually at the end of the accounting term. The
balance sheet has this name because assets must be in balance' assets must equal
liabilities ( equity.
Assets = Liabilities + Equity
Book Value:
"t is the value at which an asset is carried on a balance sheet. To calculate, take
the cost of an asset minus the accumulated depreciation. Also called modified cost.
Cash & Equivalents:
Cash ) *quivalents are monies in business accounts. This is usually cash however
cash equivalents could also be stock investments, etc. Cash and equivalents are
completely liquid assets.
Short-Term Investments:
!ormally come into play when a company has enough cash on hand that it can
afford, and chooses, to invest this money in order to earn interest. Short term
investments are those that come due, or can be converted to cash without penalty
within one year. This investment cannot be immediately turned to cash without
planning but it will earn a higher return than cash in a business bank account.
Accounts receivable:
"t is the credit etended to customers to purchase goods. The accounts receivable
balance is the total money owed to the company by customers at the end of the
reporting period. A low accounts receivable balance may indicate that the firm is
efficient in its collections or that credit standards are too restrictive and depressing
sales. A large balance may indicate that the company is having difficulty collecting
the money it is owed and its credit standards are too la. +nce a company
recogni,es that an accounts receivable will not be collected, it must reduce the value
of the account and write the uncollectable accounts off. The recognition of this
charge will ultimately impact the company. Companies maintain a reserve against
potentially uncollectable accounts receivables, titled an allowance for doubtful
accounts. "t represents management%s estimate of how much customers will default
on their bills. The allowance reduces #is charged against$ the accounts receivable
account. The higher the allowance for doubtful accounts, the more conservative the
company is in its estimates. Acceptable levels vary by industry, so it is important to
compare a company against similar firms.
Inventories:
"t may represent raw materials in stock, work-in-progress goods and finished goods
for resale. !ot all companies have inventories, particularly if they are consulting or
service based companies.
Fixed or Capital Assets:
-ied.Capital Assets are those that are not turned into cash or liquidated easily,
epected to be turned to into cash within a year and.or have a life span of over a
year. *amples would be/
i. Tangible assets such as machinery, equipment, buildings and land. A business
should seek the advice of an accountant to determine what assets should be
assigned as -ied.Capital assets if there is any doubt.
ii. Intangible assets such as goodwill, patents and copyrights.
Note/ Depreciation is calculated and deducted from tangible assets, while
Amortization is the corresponding calculation for intangible assets. 0oth
calculations represent the economic cost of fied assets over their useful life.
As an eample, a company vehicle is considered an asset of the business. "t is not
epensed at the time of purchase but rather depreciated at an assigned percentage,
until the asset is fully depreciated. The value of 1epreciation.Amorti,ation is booked
in as an epense in the companies% "ncome Statement.
iabilities:
2iabilities are what a company owes on purchase of assets or in financing its
operations. There are two classes of liabilities/ Current liabilities and 2ong Term
liabilities as defined below.
a$ Current Liabilities
Current liabilities are the financial obligations a company owes to outside parties that
are due within one year or could be called in for repayment by the lender at any time
and include/
i. Shortterm loans: 2ines of Credit and Credit card balances
ii. 1eposits on unfulfilled contracts, relevant for building contractors.
iii. Accounts !a"able are financial obligations the company owes for services or
goods purchased.
iv. Accrue# Liabilities/ ta remittances #ie/ 3ST$ and payroll benefits, e.g. money
owed to employees as salary, vacation pay and bonuses that the company currently
owes.
v. Current portion of long-term debt is the total amount of long-term debt that must
be repaid within a year.
b$ Long Term Liabilities
2ong-term liabilities are debts, which are due after a period of at least one year from
the date of the balance sheet. 2ong terms debts may include/
i. Secured 0ank loans with terms of repayment over one year
ii. 4ortgage financing
iii. Shareholder loans, whether they have an active agreement for repayment or not.
Sharehol#ers$ Equit"
Shareholders% equity is the initial amount of money invested into a business plus any
subsequent investments less cash withdrawn and plus or minus !et profit. 5hen a
company generates a profit, management will either pay shareholders a cash
dividend, or retain the earnings to reinvest into the business. Corporations can
manage their ta implications through payment of these dividends and retained
losses. An accountant is required to guide the business in managing this aspect of
the business effectively.
5hen a sole proprietorship generates a positive !et profit this profit is reported as
personal income in the year it is incurred.
!arnin"s per Share - !#S$:
The !"ti!n !# a $!many%s "!#it all!$ate& t! ea$h !utstan&ing sha"e !# $!mm!n
st!$'( Ea"nings e" sha"e se")e as an in&i$at!" !# a $!many%s "!#itability(

%orkin" Capital:
This ratio indicates whether a company has enough short term assets to cover its
short term debt.

Asset Turnover &atio:
Asset turnover ratio evaluates how well a company is utili,ing its assets to produce
revenue.

Cash Conversion C'cle:
A metric that epresses the length of time, in days, that it takes for a company to
convert resource inputs into cash flows.
Cash conversion c"cle % Average inventor" processing perio# & Average receivable collection
perio# ' Average pa"ables pa"ment perio#



Altria Group
Inc.



British American
Tobacco Plc



Japan Tobacco
Inc

Imperial Tobacco
Group Plc

&e(erences:
B' )ohn Ba*ko+sk ,Financial Statement Anal'sis: A ook at the Balance Sheet ,
)-.&NA / )anuar' 0111
Fundamentals: The items in (inancial statements help measure the per(ormance o( a compan'
and its mana"ement as +ell as help investors "au"e the +orth o( the stock price2 A look at
balance sheet items2
(http:))***+aaii+com),ournal)article)-inancialstatementanal"sisaloo.atthebalancesheet/
B' Ben 3cClure 4Fundamental Anal'sis: The Balance Sheet4
(http:))***+investope#ia+com)universit")-un#amentalanal"sis)-un#anal"sis0+asp1a2zz3L.4e2
56i/
Altria 5roup Inc2
(http:))investor+altria+com)phoeni2+zhtml7c%898::&p%irol-inancialrevie*/
(http:))investor+altria+com)phoeni2+zhtml7c%898::&p%irolreportsannual/
British American Tobacco #lc6 7&ichard Burro+s 7Chairman8 99 Februar' 9:098
(http:))***+bat+com)ar)39;;)-inancialstatements)group-inancialstatements)groupbalance
sheet)in#e2+html/
( http:))***+bat+com)ar)39;;)-inancialstatements)group-inancialstatements)groupincome
statement)in#e2+html1contentTop/
( http:))***+bat+com)ar)39;;)in#e2+html/
)apan Tobacco Inc6 )une 9;6 9:00 73ember o( <eloitte Touche Tohmatsu imited8
( http:))***+,t+com)investors)librar")annual<report)p#-)annual39;;<E<partition9:+p#-/
( http:))***+,t+com)in#e2+html/
Imperial Tobacco 5roup #lc
( http:))***+imperial
tobacco+com)-iles)-inancial)reports)ar39;3)-iles)p#-)annual<report<39;3+p#-/
( http:))***+imperialtobacco+com)in#e2+asp/
Inventor" turnover % Net revenues = Inventories
% 3>?899 = ;?00@ % ;>+>8
4eceivables turnover % Net revenues = 4eceivables
% 3>?899 = 3A8 % 88+8;
!a"ables turnover % Net revenues = Accounts pa"able
% 3>?899 = :9> % B0+>3
Cor.ing capital turnover % Net revenues = Cor.ing capital
% 3>?899 = ;?:BB % ;:+B;
Average inventor" processing perio# % >A: = Inventor" turnover
% >A: = ;>+>8 % 30
Average receivable collection perio# % >A: = 4eceivables turnover
% >A: = 88+8; % B
Dperating c"cle % Average inventor" processing perio# & Average receivable collection perio#
% 30 & B % >;
Average pa"ables pa"ment perio# % >A: = !a"ables turnover
% >A: = B0+>3 % 8
Cash conversion c"cle % Average inventor" processing perio# & Average receivable collection
perio# ' Average pa"ables pa"ment perio#
% 30 & B ' 8 % 3B
Inventor" turnover % Net revenues = Inventories
% ;:?>@@ = >?B@8 % B+B9
4eceivables turnover % Net revenues = 4eceivables
% ;:?>@@ = 3?B3>% A+>:
!a"ables turnover % Net revenues = Accounts pa"able
% ;:?>@@ = :?;0B % 3+@0
Average inventor" processing perio# % >A: = Inventor" turnover
% >A: = B+B9 % 83+@:
Average receivable collection perio# % >A: = 4eceivables turnover
% >A: = A+>: % :0+B8
Dperating c"cle % Average inventor" processing perio# & Average receivable collection perio#
% 83+@: & :0+B8 % ;B9+B>
Average pa"ables pa"ment perio# % >A: = !a"ables turnover
% >A: = 3+@0 % ;33+8@
Cash conversion c"cle % Average inventor" processing perio# & Average receivable collection
perio# ' Average pa"ables pa"ment perio#
% 83+@: & :0+B8 ' ;33+8@ % ;0+:B
Inventor" turnover % Net revenues = Inventories
% A?;@B?::B = :;>8:0 % ;3+9:
4eceivables turnover % Net revenues = 4eceivables
% A?;@B?::B = >9;?83@ % 39+:3
!a"ables turnover % Net revenues = Accounts pa"able
% A?;@B?::B = ;09?83; % >A+3A
Average inventor" processing perio# % >A: = Inventor" turnover
% >A: = ;3+9: % >9+3@
Average receivable collection perio# % >A: = 4eceivables turnover
% >A: = 39+:3 % ;0+08
Dperating c"cle % Average inventor" processing perio# & Average receivable collection perio#
% >9+3@ & ;0+08 % B8+90
Average pa"ables pa"ment perio# % >A: = !a"ables turnover
% >A: = >A+3A % ;9+9A
Cash conversion c"cle % Average inventor" processing perio# & Average receivable collection
perio# ' Average pa"ables pa"ment perio#
% >9+3@ & ;0+08 ' ;9+9A % >8+9;
Inventor" turnover % Net revenues = Inventories
% 38?:0B = >?;>3 % @+;3
4eceivables turnover % Net revenues = 4eceivables
% 38?:0B = >?93@ % @+B>
!a"ables turnover % Net revenues = Accounts pa"able
% 38?:0B = ;?9>A % 30+:8
Average inventor" processing perio# % >A: = Inventor" turnover
% >A: = @+;3 % B9+93
Average receivable collection perio# % >A: = 4eceivables turnover
% >A: = 39+:3 % >8+09
Dperating c"cle % Average inventor" processing perio# & Average receivable collection perio#
% B9+93 & >8+09 % 08+03
Average pa"ables pa"ment perio# % >A: = !a"ables turnover
% >A: = 30+:8 % ;>+3>
Cash conversion c"cle % Average inventor" processing perio# & Average receivable collection
perio# ' Average pa"ables pa"ment perio#
% B9+93 & >8+09 ' ;>+3> % A:+B@