SCT Cn ew Cees vac IN ots ER mc The balance sheet is like a snapshot of a company's financial situation at a moment in time. That's why it is sometimes called a ‘statement of financial condition” It shows a side-by-side comparison of a company’s assets and its liabilities and equity. Assets include things like cash, accounts receivable, and equipment. Liabilities include things like accounts payable and debts owed to creditors. The balance sheet is one of the basic tools in fundamental analysis. Fundamental analysis helps to determine security valuation as well Get ready! @ Before you read the passage, talk about these questions. 4 What things are included in balance sheets? 2 What do balance sheets tell us about companies? Reading @ Read this magazine articl Then mark the following statements as true (T) or false (F). 1 _ Asstatement of financial condition shows debt. What's the Deal with the Balance Sheet Een Rer | seller We Me Ela a ume Rul) Searcy ‘as growth potential. A major factor that you will want to analyze is your ‘companys working capital, which is current assets minus current labiltie. ‘Additionally, you will want to calculate your debt-to-equity ratio. This is simply a comparison of total liabilities to owner's equity. To find it, divide total liabiities by owners equity. The resulting ratio indicates how much of your company's operations are funded by debt compared to equity. For example, a debt-to-equity ratio of two means that your company is run with twice as much borrowed money as equity, eee Vocabulary — working capital — creditors vomgr no © Match the words (1-4) with the definitions (A-D). 2a) 3 fundamental analysis 4 _debt-to-equity ratio a comparison of what a company owes to what it is worth people or companies that are owed money assets minus liabilities ‘an examination of value and growth potential Q Fill in the blanks with the correct words and phrases: security valuation, side-by-side comparison, growth potential, statement of financial condition. 2 _ Determine working capital by subtracting current liabilities from current assets. 3 —_ Liabilities minus equity equals debt-to-equity ratio, 1 ____is the ability of a company to expand. 2A 3. Paul performed a is also called a balance sheet. of revenue and expenses. 4 Stock prices are set after __© @ Listen and read the article again. What items are included in a liabilities figure on a balance sheet? Listening © G Listen to a conversation between an accountant and a manager. Choose the correct answers. 1 What are the people talking about? A the need to purchase assets B a plan to borrow some money © why their working capital is rising D the company’s unusually high debt 2 What does the woman suggest? A liquidating assets B taking out a loan C laying off employees D collecting from debtors @ & Listen again and complete the conversation. Manager: Accountant: Manager: Accountant: Manager: Accountant: Manager: Accountant: Manager: Accountant: Manager: Accountant: Manager: Accountant: Manager: Accountant: Hello, Karen. Could | talk to you about those reports that you submitted last week? Sure. Is there a problem? Well, fm not sure. A couple things caught my eye, but Im not sure how to interpret them. OK. I'l see if | can help. Great. On the balance sheet, | noticed that our debt is almost twice what it was last period. Right. That's because we took a short term loan to cover some unexpected expenses. ‘Oh, that’s right. Still m a little worried about it ‘Are you thinking we should 1 9) Maybe. Do you think welll 2 — those debts? Let's see ... we can calculate our working capital. 3 ‘a good idea. OK. Is that a4 2 Not at all. Just subtract current labilties from current assets. ‘Oh, | see, That makes sense. It looks like our assets are still 5 our liabilities. Great. That 6 How should we start paying off our debt? We should try to collect our accounts receivable land use those funds to pay our debts. ° Speaking © With a partner, act out the roles below based on Task 7. Then switch roles. Student A: You are a manager. Talk to Student B about: © unusually high debt ‘* working capital © ways to reduce debt ‘Student B: You are an accountant. Answer Student A’s questions. Writing @ You are an accountant. Use the article and the conversation from Task 8 to write a brief email to your manager. Talk about: unusually high debt where the debt came from working capital options for reducing debt