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Financial Balance Sheets

The following video is borrowed from our platform and was originally recorded for our financial modeling training program.   In the following video, we cover the balance sheet by walking through an example step-by-step.

Video Transcript/SummaryThe strategies and tips provided within this video module include:

  1. If all the assets in a company were liquidated and the proceeds used to pay off all of the liabilities, what is left is the equity proceeds. Therefore, Assets = Liabilities + Equity.
  2. Current Assets are short term assets with the first line item being cash and cash equivalents with Investments coming after this on Ciscos Balance Sheet. Accounts receivable refers to the money owed to Cisco. Inventory is the equipment of the company. Deferred tax assets are essentially a tax credit that come in as an asset. Other current assets vary from company to company and for Cisco, they can be found in the footnotes of annual/interim reports.
  3. Long-term Assets include Property and Equipment Net. The “net” means that depreciation has been accounted for. Goodwill in todays M&A structures are not treated in similar fashion today as they were previously, whereby the goodwill could be treated as an expense on the Balance Sheet and therefore a tax benefit was recognised. Intangible Assets vary but in Ciscos case could be the brand for instance. Adding the Current and other Non-Current Assets gives the Total Assets.
  4. Current Liabilities are short term and includes short-term debt, which is money that generally needs to be paid out within 3 months of being borrowed. The Payables figure is the amount owed to suppliers. Income taxes payable is the figured owed to the government in the way of taxes. Accrued compensation is a liability in that it will at some stage need to be paid out to employees for leave etc. Deferred revenue refers to money received but for which the service has not delivered/provided. Adding the line items, you get the Total Liabilities figure.
  5. Non current liabilities are longer term, as is evident in the first line item, long-term debt. Adding up the non-current and current liabilities gives the Total Liabilities figure.
  6. Once the Total Equity figure is now included, we should be in a position to surmise that the Total Assets figure equals the Total Liabilities + Equity figure.
  7. Total Current Assets – Total Current Liabilities = Working Capital, which is a measure that tells you how much the company has to cover its working capital needs (i.e. the day-to-day needs of the business).

I hope that this was a practical tutorial of financial balance sheets.

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