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 fi ed assets or long term assets. !oncurrent 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 e tended 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: -i ed.Capital Assets are those that are not turned into cash or liquidated easily, e pected 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 -i ed.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 fi ed assets over their useful life.

As an e ample, a company vehicle is considered an asset of the business. "t is not e pensed 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 e pense 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. Short term 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 $!m any%s "!#it all!$ate& t! ea$h !utstan&ing sha"e !# $!mm!n st!$'( Ea"nings e" sha"e se")e as an in&i$at!" !# a $!m any%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 e presses 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)-inancial statement anal"sis a loo. at the balance sheet/ 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%irol reportsannual/ British American Tobacco #lc6 7&ichard Burro+s 7Chairman8 99 Februar' 9:098 (http:))***+bat+com)ar)39;;)-inancial statements)group -inancial statements)group balance sheet)in#e2+html/ ( http:))***+bat+com)ar)39;;)-inancial statements)group -inancial statements)group income 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:))***+imperial tobacco+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@