1.2 The Balance Sheet 2: Liabilities (What the company owes)

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From the course by The University of Melbourne

The Language and Tools of Financial Analysis

678 оценки

The University of Melbourne

The Language and Tools of Financial Analysis

678 оценки

Course 1 of 5 in the Specialization Essentials of Corporate Finance

In this course, participants will learn the foundations of accounting principles and financial analysis, develop an understanding of the links between these, and the measurement of value creation at the firm level. This is the first course in a four-course Specialization on the Essentials of Corporate Financial Analysis and Decision-Making, created in partnership between the University of Melbourne and Bank of New York Mellon (BNY Mellon). View the MOOC promotional video here: http://tinyurl.com/jeoa83t

From the lesson

An Introduction to Accounting Principles: The Language of Capital Markets

This week we will define and explain the key financial statements produced by a company and reported to its shareholders. We will discuss the different core elements within those statements following basic accounting principles with the discussion framed in reference to excerpts from the actual financial statements produced by the US-listed food company Kellogg's.

1.0 Welcome and Introduction (It all begins with accounting)5:42

1.1 The Balance Sheet 1: Assets (What the company owns)6:55

1.2 The Balance Sheet 2: Liabilities (What the company owes)4:21

1.3 The Balance Sheet 3: Equity (What the owners own)7:29

1.4 The Profit and Loss Statement: Revenues (What the company earns)6:32

1.5 The Profit and Loss Statement: Expenses (What the company spends)5:44

Meet the Instructors

Paul Kofman
Dean, Faculty of Business and Economics
Sidney Myer Chair of Commerce
Sean Pinder
Associate Professor
Faculty of Business and Economics

Having discussed assets,

we can now move on to the second component on the balance sheet, liabilities.

In Kellogg's case,

we find liabilities on the right-hand side of the balance sheet at $12 billion.

What does that mean?

What are the components making up the liabilities,

what the company owes to its lenders.

So a more detailed view of these liabilities is given here.

And as before with the assets, we distinguish short-term from long-term.

So we distinguish current liabilities from non-current liabilities.

And we'll take a closer look at what distinguishes these two categories, and

what kind of line items you might find under either.

So liabilities, first, summarise what the company owes to its lenders.

In the example I gave you before, you've started your business of delivery.

The van that you bought to deliver the goods was financed partly by bank loan.

That would be your liability.

Some of those liabilities are short-term, so this bank loan might

in all likelihood be a loan that needs to be repaid fairly quickly.

That could make it a current liability, but

in all likelihood the bank will grant you a little bit more than just a one

year loan, which is the typical definition of current liabilities.

Which means that only part of what you have to repay on the loan will be

classified as a current liability.

The part that needs to be repaid in the next year.

So current liabilities includes things like accounts payable.

Kellogg's would have bought the raw materials from the farmers.

It might have paid in advance, but, just as Kellogg's grants

credit to its customers, Kellogg's itself might also have been granted

a period during which it would have been given credit by

the providers, the farmers of the raw materials.

That's classified as accounts payable, but they need to be paid for.

And usually they need to be paid for

in a relatively short period of time, say 90 days.

Then there is short-term debt.

Consider the example that I've just given you, a bank loan, a bank loan where

part of the repayment on that loan would have to occur within the next year.

And in addition, there's a whole set of short-term, next year

obligations of repayments on longer term debt, on longer term loans.

So invoices, accounts payable would be part of the current liabilities.

Bank loans, the repayments that you will have to make in the next year,

would be part of those current liabilities as well.

Other liabilities are classified as long-term.

The bank loan that you got for

the van would probably have to be repaid over a period of say five to ten years.

That would make a large component of that loan a non-current liability.

Bonds issued by Kellogg's to finance its major operations

would also be classified as long-term debt.

We'll get into quite some detail once we start discussing the financial markets and

what exactly distinguishes long-term debt from short-term debt.

A very important component for corporations nowadays of course

is the pension liability, which is truly a long-term obligation.

Only part of that would have to be repaid within the next year.

The employees that retire within that year would have their pensions being paid out.

But the vast majority of the employees would be entitled to payments

further down the track over time, which makes it a long-term liability.

So bonds is just one example.

But as I've just gone through the list, there are quite a few obligations that

the corporation has to repay its loans, to repay its debts over time.

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