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Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved.
The Balance
Sheet and
Financial
Disclosures
3
3-2
Learning Objectives
Describe the purpose of the balance sheet and
understand its usefulness and limitations.
3-3
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.
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 available 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 available 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.
The purpose of the balance sheet is to report a
company’s financial position on a particular date.
3-4
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)
Balance Sheet
3-5
Learning Objectives
Distinguish between current and noncurrent
assets and liabilities.
Identify and describe the various balance
sheet asset classifications.
3-6
(In millions) 2004 2003
Assets:
Current assets:
Cash and cash equivalents 1,046$ 538$
Receivables, less allowances 3,027 2,627
Spare parts, supplies, and fuel 249 228
Deferred income taxes 489 416
Prepaid expenses and other 159 132
Total current assets 4,970$ 3,941$
Property and equipment, at cost:
Aircraft and related equipment 7,001$ 6,624$
Package handling & ground support
equipment and vehicles 5,296 5,013
Computer & electronic equipment 3,537 3,180
Other 4,477 4,200
20,311 19,017
Less accumulated depreciation 11,274 10,317
Net property and equipment 9,037 8,700
Other long-term assets:
Goodwill 2,802 1,063
Prepaid pension cost 1,127 1,269
Intangible and other assets 1,198 412
Total other long-term assets 5,127 2,744
Total Assets 19,134$ 15,385$
FedEx Corporation
Balance Sheet
31-May
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.
3-7
Cash
Cash
Cash Equivalents
Cash Equivalents
Short-term Investments
Short-term Investments
Receivables
Receivables
Inventories
Inventories
Prepayments
Prepayments
Cash
Cash
Cash Equivalents
Cash Equivalents
Short-term Investments
Short-term Investments
Receivables
Receivables
Inventories
Inventories
Prepayments
Prepayments
Current 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
Assets
Assets
Current
Current
Assets
Assets
Cash equivalents
include certain
negotiable items such
as commercial paper,
money market funds,
and U.S. treasury bills.
3-8
Current 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.
Cash that is restricted
for a special purpose
and not available for
current operations
should not be
classified as a current
asset.
Cash
Cash
Cash Equivalents
Cash Equivalents
Short-term Investments
Short-term Investments
Receivables
Receivables
Inventories
Inventories
Prepayments
Prepayments
Cash
Cash
Cash Equivalents
Cash Equivalents
Short-term Investments
Short-term Investments
Receivables
Receivables
Inventories
Inventories
Prepayments
Prepayments
Current
Current
Assets
Assets
Current
Current
Assets
Assets
3-9
Operating Cycle of a Typical Manufacturing
Company
Use cash to acquire raw materials
Convert raw materials to finished
product
Deliver product to customer
Collect cash from customer
3-10
Noncurrent Assets
Investments and
Investments and
Funds
Funds
Property, Plant, &
Property, Plant, &
Equipment
Equipment
Intangibles
Intangibles
Other
Other
Investments and
Investments and
Funds
Funds
Property, Plant, &
Property, Plant, &
Equipment
Equipment
Intangibles
Intangibles
Other
Other
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
Assets
Assets
Noncurrent
Noncurrent
Assets
Assets
[...]... whichever is longer Accounts Payable Accounts Payable Notes Payable Notes Payable Accrued Liabilities Accrued Liabilities Current Maturities Current Maturities of Long-Term Debt of Long-Term Debt 3-1 5 Long-term Liabilities Long-Term Long-Term Liabilities Liabilities Obligations that Obligations that will not be will not be satisfied within satisfied within one year or one year or operating cycle, operating... other classifications 3-1 2 Learning Objectives Identify and describe the two balance sheet liability classifications FedEx Corporation Balance Sheet 31-May (In milions) Liabilities: Current liabilities: Current portion of long-term debt Accrued salaries & employee benefits Accounts payable Accrued expenses Total current liabilities Long-term debt, less current portion Other long-term liabilities Deferred... shareholders, usually in the same mailing with the annual report 3-2 6 3-2 7 Learning Objectives Describe the techniques used by financial analysts to transform financial information into forms more useful for analysis 3-2 8 Using Financial Statement Information Comparative Financial Statements Allow financial statement users to compare year-to-year financial position, results of operations, and cash flows... firms 3-2 9 Learning Objectives Identify and calculate the common liquidity and financing ratios used to assess risk 3-3 0 Liquidity Ratios Current ratio = Current assets Current liabilities Measures a company’s ability to satisfy its short-term liabilities Acid-test ratio = Quick assets Current liabilities Provides a more stringent indication of a company’s ability to pay its current liabilities 3-3 1... liabilities liabilities 3-1 7 Shareholders’ Equity Capital Capital Stock Stock Deferred Deferred Compensation Compensation Retained Retained Earnings Earnings Treasury Treasury Stock Stock Accumulated Other Comprehensive Income Accumulated Other Comprehensive Income 3-1 8 Learning Objectives Explain the purpose of financial statement disclosures 3-1 9 Disclosure Notes Summary of Significant Accounting Policies... company’s internal control procedures 3-2 3 Learning Objectives Explain the purpose of an audit and describe the content of the audit report 3-2 4 Auditors’ 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 3-2 5 Auditors’ Opinions Unqualified... Pension Obligations Pension Obligations Lease Obligations Lease Obligations 3-1 6 FedEx Corporation Balance Sheet 31-May (In millions, except shares) Common Stockholders' Investment: Common stock, $.10 par value, 800 million shares authorized, 300 million shares issued for 2004 and 299 million shares issued for 2003 Additional paid-in capital Retained earnings Accumulated other comprehensive loss Less deferred... long-term liabilities Deferred income taxes Pension, postretirement healthcare and other benefit obligations Self-insurance accruals Deferred lease obligations Deferred gains, principally related to aircraft transactions Other liabilities Total other long-term liabilities Total liabilities 3-1 3 2004 $ 2003 750 $ 308 1,062 724 1,615 1,168 1,305 1,135 4,732 3,335 2,837 1,709 1,181 882 768 591 503 657 536... various alternative accounting methods Subsequent Events A 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 3-2 0 Learning Objectives... 1.05 Current ratio $4,073 $4,732 Acid-test ratio = 86 3-3 2 Financing Ratios Total liabilities Debt to equity = ratio 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 3-3 3 Financing Ratios—Federal Express .
result of past
transactions
or events.
3-7
Cash
Cash
Cash Equivalents
Cash Equivalents
Short-term Investments
Short-term Investments
Receivables
Receivables
Inventories
Inventories
Prepayments
Prepayments
Cash
Cash
Cash. 4,732 3,335
Long-term debt, less current portion 2,837 1,709
Other long-term liabilities
Deferred income taxes 1,181 882
768 657
Self-insurance accruals
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