Financial Modeling Class

Balance Sheet

Fall 2019
Bruce Tavel
 Balance Sheet
The Balance Sheet is a summary of a company’s financial position ; assets,
liabilities, and owners equity -- on a given date, a point in time

• Assets = Liabilities + Shareholders’ Equity

• Assets = what a company owns

• Liabilities = obligations to pay

• Shareholders’ Equity = value of stockholder’s investment in the company

• Net Worth
• Book value measurement, not the market value
 Balance Sheet : Assets
• Current Assets
• Assets that convert to cash within 1 year
• Cash, cash equivalents, marketable securities
• Accounts Receivable
• Inventory
• Prepaid Expenses
• Long Term Assets
• Assets that will not be converted to cash within 1 year
• PP&E : Property, plant & equipment
• Pension assets
• Intangible assets: patents, trademarks, etc.
• Goodwill : the value of a company’s brand name, customer base, proprietary
technology, etc.
 Balance Sheet: Current Assets
• Cash
• money on deposit in banks and any items that banks will accept for deposit (checks, money
orders, travelers’ checks)
• Cash Equivalents
• Liquid investments that are safe, have a stable market value and mature within 90 days of
acquisition (money market funds, US treasury bills, commercial paper)
• Marketable Securities
• Investments in bonds and stocks of public companies (traded daily on an organized
exchange)
• Accounts Receivable
• Amounts owed to the Company from customers arising from a sale of goods or services
• Inventory
• Goods that a Company sells to its customers
• Prepaid Expenses
• Payments made in advance that benefit more than the current accounting period
 Balance Sheet: Long-Term Assets
• Property, Plant and Equipment (PP&E), net
• Buildings, machinery, other equipment with a limited useful life and subject to
depreciation
• Capital expenditures increase PP&E balance
• Intangible Assets
• Long-term assets with no physical substance, but are used in the operation of
the business (patents, copyrights, trademarks, franchises, goodwill)
• Amortized over a useful life period, similar to depreciation
• Pension assets
• Other Assets
• Examples include land, deferred tax assets
 Balance Sheet: Liabilities
• Current Liabilities
• Liabilities that must be paid within 1 year
• Examples
• Accounts payable
• Accrued expenses
• Short term debt

• Long-term Liabilities
• Liabilities that will not be paid within 1 year
• Examples
• Debt (bank facility, bonds, mezzanine debt)
• Capital leases
• Pensions and other postretirement benefits
• Deferred tax liabilities
 Balance Sheet: Current Liabilities
• Accounts Payable
• Liabilities arising from the purchase of merchandise or supplies on account
• Typically associated with inventory
• Accrued Expenses
• Expenses that have been recognized on the income statement, but will be paid in future
transactions
• Examples include income taxes payable, salaries or wages payable, interest payable
• Short Term Debt - Current Maturity of Long-term Debt
• Current portions of debt that are due within 1 year (mandatory amortization, redemption)
 Balance Sheet: Long-Term Liabilities
• Debt : long term
• Interest bearing obligations of the Company with a defined maturity date
• Notes payable
• Bank facilities (Revolver, term loans)
• Bonds (high yield, investment grade)
• Capital Leases (lease contracts intended to provide financing)
• Other outstanding loans (e.g., mortgage debt)
• Deferred Tax Liability
• Differences between net income for GAAP vs. net income for tax
purposes
• Pension and benefit obligations
• Other long-term liabilities
 Balance Sheet: Walmart (WMT)
Open WMT 2012 annual report ( Blackboard Content ) see page 33
Historic Values: Hard Code
• Current Assets: economic benefit within 1 year:
• Begin: “Cash and Cash equivalents” e.g., $6,550 for 2012A
• Recall: We previously Hard Coded all required line items except Cash (“Receivables”,
“Inventory”… etc.) as we had linked into Balance sheet from the OWC statement.
• Sum all Current Assets over each year.
• Non-Current Assets
• “PP&E” = PPE,net + PPE under capital leases,net = $109,603 + $2,721 = $112,324 for 2012A.
• Note: A capital lease is ownership that is amortized
• “Goodwill” is an intangible asset = $20,651 for 2012A
• “Other assets and Deferred charges” , see p.37 of annual report, = $5,456 for 2012A
• Sum all assets, Total Assets, by year.
 Balance Sheet: Walmart (WMT)
• Current Liabilities
• “Short term borrowings”, Hard Code, $4,047 for 2012A
• Recall: We previously Hard Coded all required line items (“Accts Payable”, “Accrued
Liab”, “Accrued Inc Tax” … etc.) as we had linked into Balance sheet from the OWC
statement.
• “Long Term Debt” due within one year is that portion of LT debt obligation, same holds
for “capital leases”, same for “Current liab of discontinued operations”
• Sum all Current liabilities by year.
• Non-Current Liabilities
• “LT Debt”, “LT Debt under capital leases”, “Deferred income taxes”, “Redeemable
noncontrolling interest” as listed. The latter, as per Pignataro discussion, is listed in a
subsidiary financial statement, not owned by WMT but can be redeemed by the
subsidiary.
• Sum all Liabilities, Total liabilities, by year. E.g., $62,300 for 2012A
 Balance Sheet: Walmart (WMT)
• Shareholder’s Equity
• Equity = “common stock” + “preferred stock” –“treasury stock (stock buyback)” +
“capital in excess of par” + “Retained earnings” + “accumulated other”
• Note: if shares are given a “par value” , e.g., $0.10/share + then “capital in excess
of par” = (market price – par value)*shares issued = $4,034 = $3,577 + $352 for
2012A
• Retained Earnings = portion of net income Not distributed = $68,691 for 2012A
• Sum all Equity line items, Total Shareholder’s equity , by year, $71,315 for 2012A
 Balance Sheet : WMT Projections
• Balance Equation: Assets = Liabilities + Shareholder’s Equity (for all years)
• Line item by line item: Cash Flow Drives the Balance Sheet
Key to consider:
• Cash flow affects assets, liabilities, shareholder’s equity
• Cash statement (-) outflow => asset purchased (+) / liability(-) decreased or SE(-) decreased
• Cash statement (+) inflow => asset(-) sold / liability(+) increased or SE(+) increased
• Specifically: where ∆ = change from t-1 to t
• Current Assets
• Balance Sheet (t) = Balance sheet(t-1) +/- Related Cash Statement line item(s)
• Cash(t) = Cash(t-1) + ∆cash(t)
• AcctsRec(t) = AcctsRec(t-1) - ∆AcctsRec(t)
i.e., change in receivables, for 2013E = $146.5, cash change positive, receivable asset is thus
decreased; $5,790.5 = $5,937 - $146.5
• Same for: “Inventories”, “Prepaid expenses”, “Other current assets(discontinued operations)”
 Balance Sheet : WMT Projections
• Long term assets
• PPE(t) = PPE(t-1) – CAPEX(t) – Deprec(t) + Proceeds from disposal(t) + Investments / Acquisitions(t)
e.g., for 2013E: $117,945.3 = $112,324.0 + $14,213 -$8591.7 – 0 -0
• Other assets and deferred charges(t) = Other assets and deferred charges(t-1) – CFI (t,”other investing assets”)
– CFO(t,”other operating assets”) e.g., $5,576 = $5,456 – (-$438) - $318
• Same for: Goodwill
• Total all Assets, for each year
• Current Liabilities
• Balance sheet_ Short-term borrow(t) = Balance sheet_ Short-term borrow(t-1) + cash flow net change in short term borrow(t)
• AcctsPay(t) = AcctsPay(t-1) + ∆AcctsPay(t)
e.g., change in payables, for 2013E = $701.2, cash change positive, payables liability increases; $37,309.2 = $36,608 + $701.2
• AccruTax(t) = AccruTax(t-1) + ∆AccruTax(t)
e.g., change in accrued income tax , for 2013E = $-399.6, cash change negative, accrued income tax liability decreases
• Same for remaining liability line items
• Sum all liability line items, Total liabilities , for each year
• Shareholder’s Equity
• Shareholder’s equity acts the same way as a liability.
• Cash spent to buy back shares, or cash generated by raising equity is included
• Retained earnings(t) = Retained earnings(t-1) + Net Income(after non-recur events) - DivPaid(t) - Stockbuyback(t)
• Total Liabilities + Equity, for each year
 Balance Sheet: Sources and Uses
• A company can generate cash in 2 ways:
• Reducing an asset
• Increasing a liability

• A company uses cash in 2 ways:

• Increasing an asset
• Reducing a liability

• Sources and Uses must equal each other for a given year
Consolidated Balance Sheets
(in US$ millions) Actuals Estimates
CHANGE SOURCE/USE
On January 31 2010A 2011A 2012A 2013E 2014E 2015E 2016E 2017E 2014E-2013E S/U ABS CHANGE SUM

Assets
Current assets:
Cash and cash equivalents 7,395.0 6,550.0 6,712.5 8,078.0 9,510.6 11,305.6 13,986.7 1,365.5 U 1,365.5 U=
Receivables, net 5,089.0 5,937.0 5,790.5 6,080.0 6,323.2 6,512.9 6,643.2 289.5 U 289.5 9732.1
Inventories 36,437.0 40,714.0 40,862.4 42,905.5 44,621.7 45,960.4 46,879.6 2,043.1 U 2,043.1 S=
Prepaid expenses and other 2,960.0 1,685.0 2,458.9 2,581.8 2,685.1 2,765.6 2,820.9 122.9 U 122.9 9732.1
Other current assets (discontinued operations) 131.0 89.0 89.0 89.0 89.0 89.0 89.0 0.0 U 0.0
Total current assets 52,012.0 54,975.0 55,913.3 59,734.3 63,229.7 66,633.5 70,419.4
Property, plant and equipment, net 107,878.0 112,324.0 117,945.3 123,680.4 129,391.6 134,928.9 140,133.7 5,735.1 U 5,735.1
Goodwill 16,763.0 20,651.0 20,651.0 20,651.0 20,651.0 20,651.0 20,651.0 0.0 U 0.0
Other assets and deferred charges 4,129.0 5,456.0 5,576.0 5,039.0 4,852.0 4,972.0 4,435.0 (537.0) S 537.0
Total assets 180,782.0 193,406.0 200,085.6 209,104.7 218,124.2 227,185.4 235,639.1

Liabilities
Current liabilities:
Short-term borrowings 1,031.0 4,047.0 4,047.0 4,047.0 4,047.0 4,047.0 4,047.0 0.0 S 0.0
Accounts payable 33,676.0 36,608.0 37,309.2 39,174.6 40,741.6 41,963.8 42,803.1 1,865.5 S 1,865.5
Accrued liabilities 18,701.0 18,154.0 19,579.7 20,558.7 21,381.1 22,022.5 22,463.0 979.0 S 979.0
Accrued income taxes 157.0 1,164.0 725.4 760.6 787.3 804.2 810.5 35.2 S 35.2
Long term debt due within one year 4,655.0 1,975.0 1,975.0 1,975.0 1,975.0 1,975.0 1,975.0 0.0 S 0.0
Obligations under capital leases due within one year 336.0 326.0 326.0 326.0 326.0 326.0 326.0 0.0 S 0.0
Current liabilities of discontinued operations 47.0 26.0 26.0 26.0 26.0 26.0 26.0 0.0 S 0.0
Total current liabilities 58,603.0 62,300.0 63,988.3 66,867.9 69,284.0 71,164.5 72,450.6
Long-term debt 40,692.0 44,070.0 44,070.0 44,070.0 44,070.0 44,070.0 44,070.0 0.0 S 0.0
Long-term obligations under capital leases 3,150.0 3,009.0 3,009.0 3,009.0 3,009.0 3,009.0 3,009.0 0.0 S 0.0
Deferred income taxes and other 6,682.0 7,862.0 8,599.6 9,633.5 10,448.5 11,062.9 11,486.8 1,033.9 S 1,033.9
Redeemable noncontrolling interest 408.0 404.0 404.0 404.0 404.0 404.0 404.0 0.0 S 0.0
Total liabilities 109,535.0 117,645.0 120,070.9 123,984.5 127,215.5 129,710.4 131,420.4

Shareholders' equity
Common stock par value + additional paid-in-capital 3,929.0 4,034.0 4,034.0 4,034.0 4,034.0 4,034.0 4,034.0 0.0 S 0.0
Retained earnings 63,967.0 68,691.0 72,992.7 78,274.2 84,337.7 90,952.0 97,871.8 5,281.5 S 5,281.5
Accumulated other comprehensive income (loss) 646.0 (1,410.0) (1,458.0) (1,634.0) (1,909.0) (1,957.0) (2,133.0) (176.0) U 176.0
Total shareholders' equity 68,542.0 71,315.0 75,568.7 80,674.2 86,462.7 93,029.0 99,772.8
Noncontrolling interest 2,705.0 4,446.0 4,446.0 4,446.0 4,446.0 4,446.0 4,446.0 0.0 S 0.0

Total liabilities & equity 180,782.0 193,406.0 200,085.6 209,104.7 218,124.2 227,185.4 235,639.1

SUPPLEMENTAL DATA:
Balance? (Y/N) Y Y Y Y Y Y Y