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Copy right © 2007 by The McGraw-Hill Companies, Inc. All rights reserve d.
The Balance
Sheet and
Financial
Disclosures
3
3-2
Learning Objectives
Describe the purpose of the balance sheet and
understand its usefulness and limitations.
3-3
The Balance Sheet
Limitations:
pThe balance sheet does not
portray the market value of
the entity as a going concern
nor its liquidation value.
pResources such as
employee skills and
reputation are not recorded
in the balance sheet.
Usefulness:
pThe balance sheet describes
many of the resources a
company has available for
generating future cash flows.
pIt provides liquidity
information useful in
assessing a company’s
ability to pay its current
obligations.
pIt provides long-term
solvency information relating
to the riskiness of a
company with regard to the
amount of liabilities in its
capital structure.
The purpose of the balance sheet is to report a
company’s financial position on a particular date.
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3-4
Resources
(Assets)
Claims against
resources (Liabilities)
Remaining claims
accruing to owners
(Owners’ Equity)
Balance Sheet
3-5
Learning Objectives
Distinguish between current and noncurrent
assets and liabilities.
Identify and describe the various balance
sheet asset classifications.
3-6
(In millions) 2004 2003
Assets:
Current assets:
Cash and cash equivalents 1,046$ 538$
Receivables, less allowance s 3,027 2,627
Spare parts, supplies, and fuel 249 228
Deferred income taxes 489 416
Prepaid expenses and other 159 132
Total current a ssets 4,970$ 3,941$
Property and equipment, at cost:
Aircraft and related equipment 7,001$ 6,624$
Package handling & ground support
equipment and vehicles 5,296 5,013
Computer & ele ctronic equipment 3,537 3,180
Other 4,477 4,200
20,311 19,017
Less accumulated depreciation 11,274 10,317
Net property and equipment 9,037 8,700
Other long-term assets:
Goodwill 2,802 1,063
Prepaid pension cost 1,127 1,269
Intangible and other assets 1,198 412
Total other long-term assets 5,127 2,744
Total Assets 19,134$ 15,385$
FedEx Corporation
Balance Sheet
31-May
Assets are
probable
future
economic
benefits
obtained or
controlled by
a particular
entity as a
result of past
transactions
or events.
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3-7
CashCash
Cash EquivalentsCash Equivalents
ShortShort--term Investmentsterm Investments
ReceivablesReceivables
InventoriesInventories
PrepaymentsPrepayments
Current Assets
Will be converted Will be converted
to cash or to cash or
consumed within consumed within
one year or the one year or the
operating cycle, operating cycle,
whichever is whichever is
longer.longer.
Current Current
AssetsAssets
Cash equivalents
include certain
negotiable items such
as commercial paper,
money market funds,
and U.S. treasury bills.
3-8
Current Assets
Will be converted Will be converted
to cash or to cash or
consumed within consumed within
one year or the one year or the
operating cycle, operating cycle,
whichever is whichever is
longer.longer.
Cash that is restricted
for a special purpose
and not available for
current operations
should not be
classified as a current
asset.
CashCash
Cash EquivalentsCash Equivalents
ShortShort--term Investmentsterm Investments
ReceivablesReceivables
InventoriesInventories
PrepaymentsPrepayments
Current Current
AssetsAssets
3-9
Operating Cycle of a Typical Manufacturing
Company
Use cash to acquire raw materials
Convert raw materials to finished
product
Deliver product to customer
Collect cash from customer
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3-10
Noncurrent Assets
Investments and Investments and
FundsFunds
Property, Plant, & Property, Plant, &
EquipmentEquipment
IntangiblesIntangibles
OtherOther
Not expected to Not expected to
be converted to be converted to
cash or cash or
consumed within consumed within
one year or the one year or the
operating cycle, operating cycle,
whichever is whichever is
longerlonger
Noncurrent Noncurrent
AssetsAssets
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Noncurrent Assets
Other Assets
1. Includes long-term prepaid
expenses and any noncurrent
assets not falling in one of the
other classifications
Investments and Funds
1. Not used in the operations of the
business
2. Includes both debt and equity securities
of other corporations, land held for
speculation, noncurrent receivables, and
cash set aside for special purposes
Property, Plant and Equipment
1. Are tangible, long-lived, and used in the
operations of the business
2. Includes land, buildings, equipment,
machinery, and furniture as well as
natural resources such as mineral mines,
timber tracts, and oil wells
3. Reported at original cost less
accumulated depreciation (or depletion
for natural resources)
Intangible Assets
1. Used in the operations of the
business but have no physical
substance
2. Includes patents, copyrights, and
franchises
3. Reported net of accumulated
amortization
©
3-12
Learning Objectives
Identify and describe the two balance sheet
liability classifications.
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3-13
(In milions) 2004 2003
Liabilities:
Current liabilities:
Current portion of long-term debt 750$ 308$
Accrued salaries & employee benefits 1,062 724
Accounts payable 1,615 1,168
Accrued expenses 1,305 1,135
Total current liabilitie s 4,732 3,335
Long-term debt, less current portion 2,837 1,709
Other long-term liabilitie s
Deferred income taxes 1,181 882
768 657
Self-insurance accruals 591 536
Deferred lease obligations 503 466
426 455
Other liabilities 60 57
Total other long-term liabilities 3,529 3,053
Total liabilities 11,098 8,097
Deferred gains, principally related to
aircraft transactions
FedEx Corporation
Balance Sheet
31-May
Pension, postretirement healthcare
and other benefit obligations
Liabilities are
probable
future
sacrifices of
economic
benefits
arising from
present
obligations of
a particular
entity to
transfer
assets or
provide
services to
other entities
as a result of
past
transactions
or events.
3-14
Current Liabilities
Accounts Payable
Notes Payable
Accrued Liabilities
Current Maturities
of Long-Term Debt
Obligations expected to be
satisfied through current
assets or creation of other
current liabilities within one
year or the operating cycle,
whichever is longer
Current
Liabilities
3-15
Long-term Liabilities
Notes Payable
Mortgages
Bonds Payable
Pension Obligations
Lease Obligations
Obligations that
will not be
satisfied within
one year or
operating cycle,
whichever is
longer
Long-Term
Liabilities