4/7/11 1 “Running the Numbers” Workshop & Case Method Overview April 7, 2011 E140A Accounting Workshop 1 E140A Accounting Workshop Why should I care? • Key business drivers – Identifies the critical assumptions you are making about your business (for revenues and for costs) – Identifies what drives the growth of your business • Timeline analysis – Enables you to know how much resources are required to scale the business and when those resources are required • Does this business even make sense? – Can’t make a $1 widget with a $3B fab – Sure, selling dollar bills at a discount gets you great market share fast but also makes you broke 24/7/11 2 Basic Financial Statements Balance sheet E140A Accounting Workshop 3 Income statement Cash flow statement E140A Accounting Workshop Balance Sheet: Basic Principles Assets = Liabilities + Equity What the company owns (used to generate income) • How the ownership of assets was financed (by third parties or by the owners) • Equity = Book value of company • Note: Market and book value of company are not the same. Market value takes into account the potential growth of the company. Market Value = Share price x # shares issued 44/7/11 3 E140A Accounting Workshop Balance Sheet • A snapshot of the investing and financing activities of a firm Current Assets (liquid in less than a year) Fixed Assets Other Assets Current Liabilities (payable in less than a year) Long-Term Liabilities (bonds issued, bank loans) Shareholders’ Equity Cash Accounts Receivable Inventories Property, plant and equipment (less depreciation) Intangibles (less depreciation) Investment Securities Total Assets = Accounts Payable Salaries Payable Accrued Expenses Income Taxes Payable Short Term debt Common Stock Additional Paid-in Capital Retained Earnings Total Liabilities + Shareholders’ Equity Balance Sheet of XYZ Corp. - 31 December of 2008 (in thousand $) Assets are economic resources • An asset has the ability to provide future benefits to the company • Liabilities are creditors’ claims on the assets of a firm. The claims result from benefits the firm has previously received from the creditors 5 Shareholders’ equity is the owners’ claim • Contributed capital (Paid-in capital): the amount invested • Retained earnings: Increase in equity due to operations E140A Accounting Workshop Balance Sheets Comparison Assets Cash . . . . . . . . . . . . . . . . . . . . . . . . . . Accounts Receivable . . . . . . . . . . . . . . Inventories . . . . . . . . . . . . . . . . . . . . . . Other Current Assets . . . . . . . . . . . . . . Total Current Assets: . . . . . . . . . . . . . . . . . . Property, Plant and Equipment . . . . . . Intangible Assets . . . . . . . . . . . . . . . . . Other Long Term Assets . . . . . . . . . . . Total Assets: . . . . . . . . . . . . . . . . . . . . . . . . Liabilities and Shareholders’ Equity Accounts Payable . . . . . . . . . . . . . . . . . Notes Payable . . . . . . . . . . . . . . . . . . . Other Current Liabilities . . . . . . . . . . . . . Total Current Liabilities . . . . . . . . . . . . . . . . Long Term Debt . . . . . . . . . . . . . . . . . . . Other Noncurrent Liabilities . . . . . . . . . . Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . Shareholders’ Equity . . . . . . . . . . . . . . . . . . Total Liabilities and Shareholders’ Equity . . Wal-Mart ($B) Cisco ($B) Google ($B) 7.3 3.9 34.5 3.3 48.9 95.7 15.3 3.6 163.4 47.6 7.7 - 55.4 34.5 8.2 98.1 65.3 163.4 26.2 5.9 1.2 2.3 35.7 4.2 15.0 3.8 58.7 3.4 0.5 10.0 13.9 6.4 4.0 24.3 34.4 58.7 8.7 2.9 - 8.6 20.2 5.2 5.8 0.5 31.8 2.1 - 0.2 2.3 0.9 0.3 3.5 28.2 31.8 64/7/11 4 Evolution of a Balance Sheet Ann’s Mini Mart September 1, 2009 E140A Accounting Workshop Assets Cash……………………… $10,000 Total…………………… $10,000 Liabilities and Equity Paid-in Capital…..……… $10,000 Total…………………… $10,000 7 Evolution of a Balance Sheet Ann’s Mini Mart September 2, 2009 E140A Accounting Workshop Assets Cash……………………… $15,000 Total…………………… $15,000 Liabilities and Equity Note Payable ……...………$5,000 Paid-in Capital…..……… $10,000 Total…………………… $15,000 84/7/11 5 Evolution of a Balance Sheet Ann’s Mini Mart September 3, 2009 E140A Accounting Workshop Assets Cash……………………… $13,000 Inventory………………….. $2,000 Total…………………… $15,000 Liabilities and Equity Note Payable ……...………$5,000 Paid-in Capital…..……… $10,000 Total…………………… $15,000 9 Evolution of a Balance Sheet Ann’s Mini Mart September 4, 2009 E140A Accounting Workshop Assets Cash……………………… $14,100 Inventory………………….. $1,300 Total…………………… $15,400 Liabilities and Equity Note Payable ……...………$5,000 Paid-in Capital…..……… $10,000 Retained Earnings…………. $400 Total…………………… $15,400 104/7/11 6 Evolution of a Balance Sheet Ann’s Mini Mart September 5, 2009 E140A Accounting Workshop Assets Cash……………………… $14,100 Inventory………………….. $3,300 Total…………………… $17,400 Liabilities and Equity Accounts Payable…………$2,000 Note Payable ……...………$5,000 Paid-in Capital…..……… $10,000 Retained Earnings…………. $400 Total…………………… $17,400 11 Evolution of a Balance Sheet Ann’s Mini Mart September 6, 2009 E140A Accounting Workshop Assets Cash……………………… $14,100 Accounts Receivable……… $900 Inventory………………….. $2,700 Total…………………… $17,700 Liabilities and Equity Accounts Payable…………$2,000 Note Payable ……...………$5,000 Paid-in Capital…..……… $10,000 Retained Earnings…………. $700 Total…………………… $17,700 124/7/11 7 Evolution of a Balance Sheet Ann’s Mini Mart September 7, 2009 E140A Accounting Workshop Assets Cash……………………… $13,900 Accounts Receivable……… $900 Inventory………………….. $2,700 Pre-paid Insurance…....... $200 Total…………………… $17,700 Liabilities and Equity Accounts Payable…………$2,000 Note Payable ……...………$5,000 Paid-in Capital…..……… $10,000