Madrid resident Ivan Garth writes his first business English
article for students on MadridTeacher.com. Do the activity first
(the vocabulary list is at the bottom of this page). Alternatively,
listen to the WAV or MP3 sound file and read the article below.
Ene. 14: Disponible para clases particulares en su domicilio particular en Alcorcón.
There are three keyfinancial statements that are necessary for analysing businesses. This analysis may
be to aid investment decisions of potential investors, aid investmentdecisions to be made by the actual company or even potential lenders that need to decide
whether to trust their money in the company amongst
For example, shareholders use these statements to know how their
money is doing and the management of the company needs these
statements to understand how the company is working, its evolution
and measure the company's achievements.
three statements are:
Sheet - this tells us what a company has, owes and what's left for the owners. Income Statement - this
tells us how much a company is making; its profitability. Cash Flow Statement -
this tells us where the money has gone.
explanation is true but is over-simplified as these three financial statements
can tell us a great deal about the company and even
more so, if you have statements from two or more financial periods.
What we are
going to do today is explain the Balance Sheet. The Balance
Sheet is a snapshot of the company's financial
condition at any one moment in time, usually at the
close of a financial period. Normally, two balance
sheets at two different moments are presented; this gives us
extra information as it also allows us to understand how the
company's financial condition has evolved. But let me explain
what a Balance Sheet is in very simple day-to-day terms. Imagine
you need a loan to buy a new car. The bank
manager asks you to provide him with your financial
situation, so you go home and sit in front of a blank
piece paper, a pen, those dusty financial documents and you
divide the page in two, writing everything you have on one side,
such as your house, investments, etc. with their corresponding value and on the other what you owe, e.g. your mortgage. The difference between the two sides
is your net wealth. Well, this is your personal
Balance Sheet and companies do the same...
back to a more technical explanation, a Balance Sheet has three
main areas - assets, liabilities and shareholder's equity and these must keep to the accounting
= Liabilities + Shareholder's Equity
So as its
name suggests the Balance Sheet must balance, but...
What do these three elements mean?
Assets are economic resources that are expected to produce
economic benefits for its owners. Assets can be buildings and machinery used tomanufacture
products. They can be patents or copyrights that provide financial
advantages for their holder or even money owed to them by their customers.
Liabilities are obligations a company owes to outside parties.
They represent rights of others to money or services
of the company. Examples include bank loans, debts to suppliers or to employees.
equity is the value of a business to its owners after
all of its obligations have been met. This net
worth (the difference between what it owns and what it owes) belongs to the owners. Shareholders' equity generally
reflects the amount of capital the owners invested plus any profits that the company generates that are subsequently reinvested in the company.
This reinvested income is called retained earnings.
of you less familiar with financial statements are probably
wondering what a typical Balance Sheet looks like, so take a
FACTORY PLC. Consolidated Balance Sheet - March
Cash and Cash Equivalents
Short Term Investments
Prepaid expenses and other
Total CURRENT ASSETS
Long Term Investments
Property, Plant and Equipment
Accumulated Depreciation (or Amortization)
Short Term Debt
Total CURRENT LIABILITIES
Long Term Debt
Deferred Long Term Liability Charges
Other Stockholder Equity
Total SHAREHOLDER'S EQUITY
LIABILITIES & SHAREHOLDER'S EQUITY
In the example you can see the three big areas of the Balance Sheet and
how these actually balance. You can also see that each
area can be broken down into various other smaller elements,
but these I will explain another day...
keyfinancial statements - estados
aid - ayuda investors - inversores investment - inversiones
decisions to be made - decisiones a tomar
by the actual company - por la propia empresa
potential lenders - prestamistas potenciales amongst other reasons - entre otras razones measure the company's achievements - medir
los logros de la empresa
Balance Sheet - Balance
owes - deber
owners - propietarios Income Statement (Profit & Loss Account) - Pérdidas y Ganancias
profitability - rentable Cash Flow Statement - Estado de origen
y aplicación a great deal - mucho
even more so - aún más
snapshot - foto
A financial condition - estado financiero the close of a financial period - cierre
de un ejercicio contable
loan - préstamo
bank manager - director de banco
financial situation - estado financiero value - valor
net wealth - patrimonio neto
getting back - volviendo
assets - activos
liabilities - exigible
shareholder's equity - fondos propios
balance - cuadrar economic resources - recursos
buildings - edificios
machinery - maquinaria
tomanufacture products - fabricar
outside parties - partes externas rights of others to money - derechos
de otros a dinero
debts to suppliers - deudas con proveedores
employees - empleados have been met - han sido cubiertas net worth - patrimonio neto
belongs - pertenece profits - beneficios
retained earnings - beneficios acumulados años
actually balance - efectivamente cuadra broken down - desglosado
Garth - Business Talk Phone: +34.670.910.330.
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