NOTICE
Do not make Teaching Notes available for the general public.
Teaching Notes are published separately from the AAA journal for the express purpose
of restricting access by students. For classroom use, we suggest that you make the
appropriate portions available such that only students in your course have access to them.
Please do not post Teaching Notes on an open website where they can be scanned by
Google. When the Teaching Notes have been posted openly online in the past, it has
caused problems for faculty at other institutions who are using the Teaching Notes in
their classes.
Thank you for your cooperation. Please contact AAA staff with any questions.
American Accounting Association
5717 Bessie Drive
Sarasota, FL 34233-2399
Phone: (941) 921-7747
Fax: (941) 923-4093
Email: office@aaahq.org
http://aaahq.org
ISSUES IN ACCOUNTING EDUCATION
Vol. 22, No. 4
November 2007
pp. 32–43
TEACHING NOTES
Identifying and Coping with Balance
Sheet Differences: A Comparative
Analysis of U.S., Chinese, and French Oil
and Gas Firms Using the ‘‘Statement of
Financial Structure’’
Yuan Ding, Gary M. Entwistle, and Hervé Stolowy
PRINCIPAL THEMES EXPLORED IN THE CASE
●
●
●
Balance sheet format differences:
●
single-step versus multiple-step
●
ordering of the two sides of the balance sheet (decreasing versus increasing)
Preparation of a Statement of Financial Structure;
Comparative analysis using the Statement of Financial Structure.
REQUIREMENT 1: IDENTIFY BALANCE SHEET FORMAT DIFFERENCES
Comparing firms’ financial situations is important for accounting information users.
However, such comparability—most notably between firms in different countries—is made
challenging as many countries either encourage, require, or accept a diversity of presentation formats, for example, in the firms’ balance sheets.
The key choices firms have in the presentation of their balance sheet are (1) the degree
of ‘‘fineness,’’ that is, whether the assets and liabilities will ‘‘stand alone’’ or be ‘‘mixed’’
(single versus multiple-step), and (2) the ordering of assets and liabilities (e.g., by increasing
or decreasing liquidity and maturity) (see Figure TN1).
Single-Step versus Multiple-Step
In a ‘‘single-step’’ approach, the assets and liabilities ‘‘stand alone.’’ That is, none of
the assets (or liabilities), either current or noncurrent, are mixed with any liabilities (or
assets) in the balance sheet. In contrast, in a ‘‘multiple-step’’ format, assets and liabilities
can be mixed to create various subsets or mixtures of assets and liabilities. The multiple
step approach is common in the U.K. and other Commonwealth countries (e.g., India), and
is sometimes used in The Netherlands; this approach is rare in the U.S.
Yuan Ding is a Professor at China Europe International Business School, Gary M. Entwistle
is a Professor at the University of Saskatchewan, and Hervé Stolowy is a Professor at the
HEC School of Management, Paris.
32
33
Identifying and Coping with Balance Sheet Differences
FIGURE TN1
Balance Sheet Presentation
“Single-step”
Fineness
“Multiple-step”
Presentation of
the balance
sheet
Decreasing liquidity
and maturity
Ordering
preference
Increasing liquidity
and maturity
The single-step and the multiple-step approaches reflect different readings of the balance sheet equilibrium:
Single-step → Assets ⫽ Liabilities ⫹ Stockholders’ equity
Multiple-step → Assets ⫺ Liabilities ⫽ Stockholders’ equity
An example of multiple-step format is provided in Table 1.
Decreasing versus Increasing Order of Liquidity and Maturity
In a balance sheet, the ordering of assets and liabilities (and equity) can differ based
on notions of liquidity and maturity. Although such ordering—in terms of relative liquidity
(for resources) and maturity (for obligations)—does not in and of itself change anything
of substance for the firm, there do tend to be differences in practice between countries. The
North American tradition—both U.S. and Canada—tends to favor reporting first those items
that help users understand the short-term survival potential of the firm. Consequently, assets
TABLE 1
Multiple-Step Balance Sheet
(British presentation)
⫺
⫽
⫺
⫽
⫽
Assets
Current liabilities
Assets minus current liabilities
Noncurrent liabilities
Total net assets
Stockholders’ equity
Control: Net assets ⫽ Stockholders’ equity
Issues in Accounting Education, November 2007
34
Ding, Entwistle, and Stolowy
are listed in decreasing order of liquidity, beginning with cash and other highly liquid assets,
and followed by the firm’s capital assets. Short-term liabilities—having a closer maturity
date—would also be recorded prior to long-term liabilities—refer to Case materials, Exhibit
5, and the Appendix, Panel A. Conversely, the Continental European tradition tends to favor
reporting the ‘‘stock’’ of assets (i.e., long-term resources) first, thus emphasizing the firm’s
long-term potential. Hence, on the asset side, the firm’s capital assets would be reflected
first, while the firm’s stockholders’ equity would take precedence over liabilities—refer to
Table 2.
We now examine these two choices of balance sheet presentation for the three companies. Table 3 highlights the differences (and similarities), using Exxon as the comparison
firm and using the 2005 balance sheet amounts. It should be noted that no one presentation
style is intrinsically superior, nor should the informational content being provided necessarily be affected by the form of presentation. Note how each studied balance sheet represents a common format:
●
●
●
U.S. format (single-step and decreasing): Exxon
British format (multiple-step): Sinopec
Continental European format (single-step, increasing): Total.
Differences in Terminology
At this point, we could add that there are also sometimes different balance sheet terms
in addition to varying formats. The issue of differences between U.S. and U.K. terminology
has been developed in several books (Saudagaran 2004, 151–152; Choi and Meek 2005,
340; Kothari and Barone 2006, 17; Stolowy and Lebas 2006, 110–111; Doupnik and Perera
2007, 403 and 406). Well-known examples of these differences include: statement of financial position (U.S.) and balance sheet (U.S./U.K.), inventories (U.S.) and stocks (U.K.),
accounts receivable (U.S.) and trade debtors (U.K.), and stocks (U.S.), and shares (U.K.).
In the present case, there are no significant differences because the non-U.S. balance sheets
(Sinopec and Total) have mostly adopted the U.S. terminology. For instance, they both use
the term ‘‘inventories.’’
REQUIREMENT 2: PREPARE SBS AND SFS
Preparation of the Simplified Balance Sheet
A company’s simplified balance sheet is structured based on the premise that two
separate ‘‘time horizons’’ (current or short-term; noncurrent or long-term) exist for each
TABLE 2
Balance Sheet
(Continental European presentation)
000 currency units
Assets
Stockholders’ equity and liabilities
Land and equipment
Inventories
Accounts receivable
Cash
220
160
100
40
Stockholders’ equity
320
Long-term liabilities
Short-term liabilities
110
90
Total
520
Total
520
Issues in Accounting Education, November 2007
Identifying and Coping with Balance Sheet Differences
35
TABLE 3
Balance Sheet
Comparison of the Three Companies
Exxon
(Based on U.S. GAAP)
Criteria
Single-step
versus
multiplestep
Sinopec
(Based on IFRS)
(as compared to Exxon)
Total
(Based on IFRS)
(as compared to Exxon)
Multiple-step
Single-step
Single-step
The assets and liabilities ● The assets and liabilities ● The assets and
stand alone (i.e., they are
do not stand alone. The
liabilities similarly
not mixed together: all
current assets are
stand alone (all assets
the assets are presented
combined with current
followed by all equity
followed by all liabilities
liabilities to give net
and all liabilities).
● The balance sheet
and then all equity).
current liabilities
● The balance sheet
follows the traditional
(25,358). Total assets
follows the traditional
accounting equation
are combined with
accounting equation as
as follows:
current liabilities to give
follows: Total Assets
Total Assets
total assets less current
⫽ Total Liabilities
⫽ Shareholders’
liabilities (366,672).
⫹ Shareholders’ Equity. ● The balance sheet
Equity ⫹ Total
In numeric terms:
follows the traditional
liabilities. In numeric
208,335 ⫽ 97,149
accounting equation as
terms: 106,144
⫹ 111,186.
⫽ 41,483 ⫹ 64,661.
follows: Total Assets*
⫺ Total Liabilities
⫽ Shareholders’ Equity.
In numeric terms:
366,672 – 113,676
⫽ 252,996.
* Note that total assets is
net of current liabilities.
Decreasing Decreasing order
Concept not applicable
Increasing order
versus
● Current assets precede
● Noncurrent assets
(because the assets and
increasing
noncurrent assets and
precede current assets.
liabilities are combined).
order of
current liabilities precede
Shareholders’ equity
liquidity /
noncurrent liabilities.
precedes liabilities.
maturity
● Current assets are
Noncurrent liabilities
ordered by decreasing
precede current
liquidity, with most
liabilities.
● Current assets are
liquid current assets
ordered by increasing
(cash and cash
liquidity, with least
equivalents) shown first.
● The overall ordering is
liquid current assets
from top to bottom:
(inventories) shown
current assets,
first.
● The overall ordering
noncurrent assets;
is from top to bottom:
current liabilities,
noncurrent assets,
noncurrent liabilities,
current assets;
shareholders equity.
shareholders’ equity,
noncurrent liabilities,
current liabilities.
●
Issues in Accounting Education, November 2007
36
Ding, Entwistle, and Stolowy
side (assets and liabilities) of the balance sheet. These time horizons in turn correspond to
different types of decisions that are required for the firm’s assets and liabilities.
The preparation of the simplified balance sheet is a preliminary step toward completing
the statement of financial structure. Pedagogically, however, it is a most difficult part of the
process because the balance sheet items must be grouped properly into the three subcategories of assets, liabilities, and equity. Some items in the balance sheet may be difficult to
classify because they can fall into two categories; hence, judgment is required. For example,
some categories of short-term investments could be classified not only as positive cash, but
also as current assets (excluding cash) if we assume that these investments cannot be easily
transformed into cash. Importantly, consistent categorization of like items is required across
the comparison firms. Tables 4 to 6 present, respectively, the simplified balance sheets for
Exxon, Sinopec, and Total.
Preparation of the Statement of Financial Structure
Once the simplified balance sheet has been prepared, the creation of the statement of
financial structure is relatively straightforward and mechanistic. Tables 7 to 9 present,
TABLE 4
Simplified Balance Sheet
Exxon
(millions of U.S. dollars)
2005
2004
2003
Cash
Current assets (excluding cash)
Noncurrent assets
Total assets
Short-term bank loans and bank overdrafts
Current liabilities (excluding short-term bank loans and bank
overdrafts)
Long-term liabilities
Equity
Total stockholders’ equity, provisions and liabilities
33,275
40,067
134,993
208,335
1,081
45,226
23,135
37,242
134,879
195,256
2,330
40,651
10,626
35,334
128,318
174,278
2,551
35,835
50,842
111,186
208,335
50,519
101,756
195,256
45,977
89,915
174,278
TABLE 5
Simplified Balance Sheet
Sinopec
(millions of renminbi)
2005
2004
2003
Cash
Current assets (excluding cash)
Noncurrent assets
Total assets
Short-term bank loans and bank overdrafts
Current liabilities (excluding short-term bank loans and bank
overdrafts)
Long-term liabilities
Equity
Total stockholders’ equity, provisions, and liabilities
Issues in Accounting Education, November 2007
14,747
130,544
392,030
537,321
15,392
155,257
18,280
101,991
354,323
474,594
20,009
126,268
18,447
84,592
317,145
420,184
19,990
109,282
113,676
252,996
537,321
104,231
224,086
474,594
93,346
197,566
420,184
37
Identifying and Coping with Balance Sheet Differences
TABLE 6
Simplified Balance Sheet
Total
2005
Noncurrent assets
Current assets (excluding cash)
Cash
Total assets
Equity
Long-term liabilities
Current liabilities (excluding short-term bank loans and bank
overdrafts)
Short-term bank loans and bank overdrafts
Total stockholders’ equity, provisions, and liabilities
(millions of euros)
2004
2003
62,391
39,435
4,318
106,144
41,483
31,233
30,500
53,827
29,080
3,860
86,767
32,418
27,572
25,392
50,450
23,273
6,240
79,963
31,466
25,388
20,931
2,928
106,144
1,385
86,767
2,178
79,963
TABLE 7
Statement of Financial Structure
Exxon
(millions of U.S. dollars)
2005
2004
2003
Equity
Long-term liabilities
Noncurrent assets
Working capital
Current assets (excluding cash)
Current liabilities (excluding short-term bank loans and bank
overdrafts)
Working capital need
Cash
Short-term bank loans and bank overdrafts
Net cash
Control: Working capital less Working capital need ⫽ Net
cash
111,186
50,842
(134,993)
27,035
40,067
(45,226)
101,756
50,519
(134,879)
17,396
37,242
(40,651)
89,915
45,977
(128,318)
7,574
35,334
(35,835)
(5,159)
33,275
(1,081)
32,194
32,194
(3,409)
23,135
(2,330)
20,805
20,805
(501)
10,626
(2,551)
8,075
8,075
respectively, the statements of financial structure for Exxon, Sinopec, and Total. Note how
in preparing these statements, three working capital measures are presented: working capital, working capital need, and net cash. These are discussed in more detailed below.
Cash Equation
The three main concepts: working capital, working capital need, and net cash introduced in Exhibit 4 (in the case) are interrelated in what we call the cash equation.
Given that ‘‘stockholders’ equity plus liabilities’’ always equal total assets (this equality
being known as ‘‘balance sheet equation’’), we can get different structures by moving items
from side to side of the balance sheet equation, as demonstrated below.
Issues in Accounting Education, November 2007
38
Ding, Entwistle, and Stolowy
TABLE 8
Statement of Financial Structure
Sinopec
(millions of renminbi)
2005
2004
2003
Equity
Long-term liabilities
Noncurrent assets
Working capital
Current assets (excluding cash)
Current liabilities (excluding short-term bank loans and bank
overdrafts)
Working capital need
Cash
Short-term bank loans and bank overdrafts
Net cash
Control: Working capital less Working capital need ⫽ Net
cash
Balance sheet
equation
Assets
PC ⫹ CA ⫹ NCA
252,996
113,676
(392,030)
(25,358)
130,544
(155,257)
224,086
104,231
(354,323)
(26,006)
101,991
(126,268)
197,566
93,346
(317,145)
(26,233)
84,592
(109,282)
(24,713)
14,747
(15,392)
(645)
(645)
(24,277)
18,280
(20,009)
(1,729)
(1,729)
(24,690)
18,447
(19,990)
(1,543)
(1,543)
Stockholders’ Equity and Liabilities
NegC ⫹ CL ⫹ LTL ⫹ E
⫽
Without breaking the equilibrium, by moving NCA to the right and NegC and CL to the left, we have:
Cash Equation (1)
(PC ⫺ NegC) ⫹ (CA ⫺ CL)
(LTL ⫹ E ⫺ NCA)
NC ⫹ WCN
WC
Or by moving WCN to the right, we have:
Cash Equation (2)
(PC ⫺ NegC)
⫽
(LTL ⫹ E ⫺ NCA) ⫺ (CA ⫺ CL)
NC
⫽
WC ⫺ WCN
Or by moving NC to the right and WCN to the left, we have:
Cash Equation (3)
(CA ⫺ CL)
(LTL ⫹ E ⫺ (NCA) ⫺ (PC ⫺ NegC)
WCN
WC ⫺ NC
This demonstrates that, from the balance sheet equation, we can get three variations of
a new equation named the ‘‘cash equation’’:
1. Working capital ⫽ Working capital need ⫹ Net cash
2. Working capital ⫺ Working capital need ⫽ Net cash
3. Working capital need ⫽ Working capital ⫺ Net cash
Issues in Accounting Education, November 2007
39
Identifying and Coping with Balance Sheet Differences
TABLE 9
Statement of Financial Structure
Total
2005
Equity
Long-term liabilities
Noncurrent assets
Working capital
Current assets (excluding cash)
Current liabilities (excluding short-term bank loans and
bank overdrafts)
Working capital need
Cash
Short-term bank loans and bank overdrafts
Net cash
Control: Working capital less Working capital need ⫽ Net
cash
(millions of euros)
2004
2003
41,483
31,233
(62,391)
10,325
39,435
(30,500)
32,418
27,572
(53,827)
6,163
29,080
(25,392)
31,466
25,388
(50,450)
6,404
23,273
(20,931)
8,935
4,318
(2,928)
1,390
1,390
3,688
3,860
(1,385)
2,475
2,475
2,342
6,240
(2,178)
4,062
4,062
The cash equation, introduced above and which makes the link between the three
working capital concepts, establishes a critical liaison between the constituents of the balance sheet and allows users and analysts of financial information to evaluate the position
of the firm with regard to its operating cycle.
However, it is important to insist on the idea that the SFS necessitates the use of method
(a) (refer to Case materials, Figure 1) because it relates the excess of long-term funding
(working capital with method (a)) to the financing need arising from the operating cycle
(working capital need), the net cash being a ‘‘resulting figure.’’
REQUIREMENT 3: COMPARATIVE ANALYSIS OF THE STATEMENTS OF
FINANCIAL STRUCTURE
Preliminary Remarks
In all three consolidated balance sheets, we observe that the separation between noncurrent assets versus current assets and between noncurrent liabilities versus current liabilities is clearly defined, hence easing the preparation of the simplified balance sheets and
statements of financial structure. Note also how Exxon has a balance sheet item entitled
‘‘Equity of minority and preferred shareholders in affiliated companies’’ that it includes in
long-term liabilities; similar minority interest balances in Sinopec and Total are included
in their equity sections. We emphasize, however, that this difference has no influence on
our financial structure analysis since both long-term liabilities and equity are similarly
included in the computation of WC. Note that to complete the Statement of Financial
Structures, we need additional information from the notes to the financial statements—
these are shown at the bottom of the balance sheets. For example, in the case of Exxon,
the amount in line item ‘‘Short-term bank loans and bank overdrafts’’ is considered to
include ‘‘Bank loans’’ and ‘‘Commercial paper,’’ for Sinopec it consists of the firm’s ‘‘Shortterm loans,’’ and for Total it is the ‘‘Current financial debt and bank overdrafts.’’ In our
comparison below, we will show that while the three companies operate in the same industry, they employ different financial structures.
Issues in Accounting Education, November 2007
40
Ding, Entwistle, and Stolowy
Global Overview
As mentioned above, the three companies’ balance sheets are prepared using three
different formats. In addition, each balance sheet reports its results in different currencies:
U.S. dollars (Exxon), renminbi (Sinopec), and euros (Total). Note, however, that these
differences in both format and currency are adjusted for—or standardized—through the
statements of financial structure. This standardization then allows us to appropriately examine and compare how the companies manage their financial structures.
In class we find it important to first present a global view of the financial structure of
each company. We use the relevant financial structure for each company per Figure 2 (in
the case materials), and point out that the relevant structure is stable for each company
from 2003 through 2005.
NC
(Net cash)
⬎0
WC
(Working
capital)
⬎0
WCN
WC
(Working
capital)
⬍0
(Working
capital need)
⬍0
Exxon (Case 3)
NC
(Net cash)
NC
(Net cash)
⬍0
⬎0
WCN
WCN
(Working
capital need)
⬍0
Sinopec (Case 5)
WC
(Working
capital)
⬎0
(Working
capital need)
⬎0
Total (Case 1)
Note that there is an alternative way—shown below—to present (and visualize) the
financial structures, although perhaps not as illustrative as shown in the structures above.
Working capital
Working capital need
Net cash
2005
Exxon
2004
2003
⫹
⫺
⫹
⫹
⫺
⫹
⫹
⫺
⫹
Sinopec
2005
2004
2003
⫺
⫺
⫺
⫺
⫺
⫺
⫺
⫺
⫺
2005
Total
2004
2003
⫹
⫹
⫹
⫹
⫹
⫹
⫹
⫹
⫹
Given that the structure remains unchanged over the period for each company, a further
simplified table can also be prepared:
2005–2003
Working capital
Working capital need
Net cash
Exxon
Sinopec
Total
⫹
⫺
⫹
⫺
⫺
⫺
⫹
⫹
⫹
Exxon
With a growing negative WCN, Exxon’s financial structure is similar to that of a retail
or distribution firm (Case 3 in Figure 2, in the case materials). This type of financial
structure is one where the firm has the ability to retain a significant amount of payables,
and has rigorous inventory and receivable control systems (with a capacity to keep these
two elements at a low level). Meanwhile, Exxon is quite prudent in its investment management with all its long-term investments being financed by long-term capital (WC ⬎ 0).
WC is increasing steadily mainly because of firm’s profitability, while the level of the longterm assets remains quite stable. One potential criticism of Exxon’s structure is a high level
Issues in Accounting Education, November 2007
Identifying and Coping with Balance Sheet Differences
41
of net cash, representing 16 percent of total assets at the end of 2005. It may be prudent
to use this cash to repay some short- or long-term debt, or to finance additional business
investment.
Sinopec
At first glance Sinopec has the weakest financial structure of the three firms, with all
three working capital indicators being negative (refer to Case 5 in Figure 2, in the case
materials). However, we need to be very cautious in this interpretation in terms of awareness
of the business environment in China. If we concentrate on WC, then we see Sinopec has
the most dynamic balance sheet with its noncurrent assets increasing more than 10 percent
each year. This increase is consistent with the recent (and ongoing) dynamism of the Chinese economy. In order to satisfy its need for financing, Sinopec is relying mainly on profit
reinvestment and to a lesser extent on long-term debt. However, this strategy is not in itself
sufficient; hence, WC has remained consistently negative for the last three years.
Where do the other sources for long-term investment come? They come from payables
(WCN ⬍ 0) and from short-term borrowings (NC ⬍ 0). In a more stable economy—one
with relatively consistent but slow growth—we could conclude that this financial situation
is very risky. However, owing to Sinopec’s quasi-monopoly position in the industry and its
well-established political connections, the firm is considered as very creditworthy in China,
and has an extremely strong negotiation position vis-à-vis its suppliers. Hence, a negative
WCN is presently a sustainable solution for Sinopec. Note also that due to the lack of a
well-established financial market in China, there are very few financial instruments available. Short-term bank borrowings are the typical financial source for many firms, even for
long-term investment projects. Here again, due to its dominant position and strong political
connections, it is difficult to imagine that Chinese banks would push Sinopec too strongly
in terms of its outstanding debt.
Total
Total’s financial structure corresponds to Case 1 in Figure 2 (in the case materials),
which represents a stable financial structure of a manufacturing firm, with WC, WCN, and
NC all being positive. This implies that Total has sufficient long-term capital to finance
both its long-term investment needs (since WC ⬎ 0), and its ongoing operating activities.
Nevertheless, the trends for Total over the past three years are showing some worrying
signals. Although the WC increased sharply, mainly due to the high profit in 2005, and has
hence strengthened the firm’s solvency, this increase may also demonstrate a lack of investment opportunities and a reduction in future profitability. Even more worrying is the
sharp increase of WCN, which offsets the improvement of WC. This increase is likely
caused by fast growth of inventories and receivables. Here, we need to calculate the inventory and receivable turnover in order to better understand the risk.
ADDITIONAL ANALYSIS: RATIOS COMPUTATION
The SFS provides some useful insights into the financial structure analysis of companies. However, it cannot encompass all aspects of a balance sheet analysis. It is therefore
possible to complement the SFS analysis with some ratios, for example, those shown in
Table 10.
The first ratio (‘‘Current ratio’’) is equivalent to the working capital computed with the
method (b). When the ratio is higher than 1, it is positive; if lower than 0, it is negative.
It shows that all WC are positive over the period, for Exxon and Total. For Sinopec, the
ratio is lower than 1, i.e., negative, as we have already seen earlier in the article. However,
Issues in Accounting Education, November 2007
42
Issues in Accounting Education, November 2007
TABLE 10
Ratios Computation
Current ratio
Quick (acid-test) ratio
Cash ratio
Exxon
2004
2003
2005
Sinopec
2004
1.584
1.405
1.197
0.851
0.822
1.383
1.184
0.964
0.327
0.719
0.538
0.277
0.457
0.466
14.478
0.496
0.479
13.864
0.511
0.484
13.426
2005
Total
2004
2003
0.797
1.309
1.230
1.277
0.382
0.426
0.929
0.884
1.012
0.086
0.125
0.143
0.139
0.162
0.270
0.449
0.529
40.018
0.465
0.528
55.542
0.472
0.530
127.533
0.753
0.609
9.254
0.851
0.626
10.991
0.807
0.606
17.990
2003
Ding, Entwistle, and Stolowy
Leverage
Debt ratio
Tangible to Intangible
assets ratio
Total current assets / Total current
liabilities
(Cash ⫹ marketable securities and
receivables) / Current liabilities
(Cash ⫹ marketable securities) / Current
liabilities
Long-term liabilities / Stockholders’ equity
Total debt / Total assets
Tangible assets / Intangible assets
2005
Identifying and Coping with Balance Sheet Differences
43
it also discloses that the WC is higher for Exxon than Total and, in turn, than Sinopec. The
quick and cash ratios provide a similar pattern.
The leverage ratio is similar between Exxon and Sinopec while much higher for Total.
Finally, the smallest debt ratio can be found for Exxon, Total experiencing the highest ratio,
and Sinopec being in between. Finally, we computed the tangible to intangible assets ratio.
This ratio is high for all companies, given the low amount of intangible assets, which can
be explained by the industry.
CONCLUSION
This case uses U.S., Chinese, and French firms to illustrate how the balance sheet
presentation can differ depending on the firm’s location. It also demonstrates, through the
application of a tool called the ‘‘Statement of Financial Structure,’’ how it is possible to
cope with these differences and, hence, to appropriately compare across countries. The case
also requires students to perform some challenging financial analysis, using various concepts of working capital. As part of this analysis, students recognize the importance of
contextualizing their responses through understanding the business environment within
which the companies operate.
REFERENCES
Choi, F. D. S., and G. K. Meek. 2005. International Accounting. 5th edition, Upper Saddle River,
NJ: Pearson Education.
Doupnik, T., and H. Perera. 2007. International Accounting. New York, NY: McGraw-Hill Education
(Asia).
Kothari, J., and E. Barone. 2006. Financial Accounting—An International Approach. Harlow, U.K.:
Pearson.
Saudagaran, S. M. 2004. International Accounting: A User Perspective. 2nd edition, Mason, OH:
Thomson South-Western.
Stolowy, H., and M. Lebas. 2006. Financial Accounting and Reporting: A Global Perspective. 2nd
edition. London, U.K.: Thomson.
Issues in Accounting Education, November 2007