MGT Notes

Corporate Finance – Ross et al, 12e, Pg 1

The Balance Sheet is a document that provides a snapshot of the firm and its activities at a single point in time. Structurally, it consists of a column called ‘Assets’ on the left-hand side. & Liabilities and Equity on the right-hand side.

Assets can be of two types: Current Assets (have short lives, ex. inventory) and Fixed Assets (have longer lives, ex. buildings). Fixed Assets can be either tangible (ex. equipment) or intangible (ex. patents).

The right side of the Balance Sheet shows the forms of financing that the firm has used to acquire the assets. The firm will sell pieces of paper called Debt (loan agreements) or Equity shares (stock certificates). Current liabilities represent short term debt that needs to be paid off within 1 year. The Shareholder’s Equity is the difference between the Assets and the Liabilities of the firm, and it represents the residual claim on the assets of the firm.