Media and Journalism Course
Economic and Business Reporting
THREE KEY FINANCIAL STATEMENTS
Balance Sheets
If you’ve never seen one before, here’s what a balance sheet looks like.
As you can see, a balance sheet gives information about a company’s assets,
liabilities and equity. Let’s consider each of those and understand more about
what they are.
Assets
In your own life you probably already understand that assets are things that you
own – like a computer or iPod or a book. Assets can also refer to items such as
pigs and goats, or the produce from the village plantation. It’s the same for
companies. Assets are things that a company owns that have a value. So for a
company, this means they can either be sold or used to make products or
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Media and Journalism Course
Economic and Business Reporting
provide services that can be sold. In company terms assets usually include
physical property, such as plants, trucks, equipment and inventory. It also
includes things that may not be tangible or real but which nevertheless exist and
have value, such as trademarks and patents. And of course cash itself is an
asset. If a company has invested in other companies or bought other assets,
these investments are also considered part of the company’s assets.
Assets may be split into current and non-current assets – that is, assets are
generally listed based on how quickly they will be converted into cash. Current
assets are things a company expects to convert to cash within one year. For
example, inventory is often considered a current asset as companies usually
expect to sell their inventory for cash within a year. Noncurrent assets are things
a company does not expect to convert to cash within a year or that would take
longer than one year to sell. Noncurrent assets include fixed assets, like
warehouses, trucks, office furniture and other property that is used to run the
company.
Liabilities
Liabilities are the term for the money that a company owes others. This can
include all kinds of obligations, like money borrowed from a bank to launch a new
product, rent for use of a building, money owed to suppliers for materials, payroll
a company owes to its employees, environmental cleanup costs, or taxes owed
to the government. Liabilities also include obligations to provide goods or
services to customers in the future.
Again, these are usually represented as current and non-current liabilities,
depending on the due date required for payment. Liabilities are said to be either
current or long-term. Current liabilities are obligations a company expects to pay
off within the year. Long-term liabilities are obligations due more than one year
away – examples can include deferred tax liabilities or provisions for the future.
Equity
This is sometimes called capital or net worth. It’s the money that would be left if a
company sold all of its assets and paid off all of its liabilities. This leftover money
belongs to the shareholders, or the owners, of the company. It is sometimes
called Shareholder’s Equity.
Sometimes companies pay out earnings, instead of keeping them – these are
then called dividends.
So what’s the balance sheet showing?
The concept of ‘balance’ is very important in looking at company performance, as
a balance sheet shows assets which are equal to the Liabilities plus any Equity. If
we consider it as an equation it is simply:
Assets=Liabilities plus Equity.
Thus, a company's assets have to equal, or "balance," the sum of its liabilities
and equity.
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Media and Journalism Course
Economic and Business Reporting
A company’s balance sheet is set up so you can work out the basic accounting
equation above - usually the assets are at the top, followed by liabilities, and
equity at the bottom.
Remember, a balance sheet is only a snapshot of a company’s assets, liabilities
and equity at the end of the reporting period. It does not show the flows into and
out of the accounts during the period.
Closure
This module introduced three key financial statements:

Balance sheets

Income statements

Cash flows
Balance sheets are a snapshot that contains information about a company’s
assets, liabilities and equity.
Income statements show the position of a company in relation to what it earned
in the year. The concepts of gross and net were introduced and the earnings per
share model was explained.
We considered the three main components of cash flow statements – that is,
operating activities, investing activities and financing activities, and understood
why different activities are reported here.
Importantly, we then considered the notes that are often included with such
statements and how as journalists we must always look at all the evidence
available. Notes and official disclosures can contain valuable information and
give clues about a company’s view on its performance and future prospects.
We finished by discussing the uses of each of these statements and identified
where they were inter-related.
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