Analyzing Investing Activities The Balance Sheet

Transcript:Analyzing Investing Activities The Balance Sheet:
Analyzing Investing Activities The Balance Sheet Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 2-2 “Old accountants never die; they just lose their balance” --Anonymous Current (Short-term) Assets Noncurrent (Long-term) Assets Resources or claims to resources that are expected to be sold, collected, or used within one year or the operating cycle, whichever is longer. Resources or claims to resources that are expected to yield benefits that extend beyond one year or the operating cycle, whichever is longer. Classification Assets 2-5 Common-Size Balance Sheet Expresses each item on the balance sheet as a percentage of total assets Reveals the composition of assets Form of vertical ratio analysis that allows comparison of firms Useful for evaluating trends within a firm and to make industry comparisons Current Assets Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 2-8 Operating cycle Time required to purchase or manufacture inventory, sell the product, and collect the cash Working capital Also called net working capital Current assets less current liabilities Cash and Cash Equivalents Short-term, highly liquid investments that are: Readily convertible to a known cash amount. Close to maturity date and not sensitive to interest rate changes Companies risk a reduction in liquidity should the market value of short-term investments decline Cash and cash equivalents are sometimes required to be maintained as compensating balances to support existing borrowing arrangements or as collateral for indebtedness. Receivables Receivables are amounts due from others that arise from the sale of goods or services, or the loaning of money Accounts receivable refer to oral promises of indebtedness due from customers Notes receivable refer to formal written promises of indebtedness due from others Receivables are reported at their net realizable value — total amount of receivables less an allowance for uncollectible accounts Management estimates the allowance for uncollectibles based on experience, customer fortunes, economy and industry expectations, and collection policies Valuation of Receivables TURKCELL Allowance for doubtful receivables During the current year, the Group has changed its accounting estimates regarding the determination of allowance for doubtful receivables. Formerly, the allowance for doubtful receivables was based on management’s evaluation of the volume of the receivables outstanding, historical collection trends and general economic conditions. With the new accounting estimate, the Group maintains an allowance for doubtful receivables for estimated losses resulting from the inability of the Group’s subscribers and customers to make required payments. The Group bases the allowance