Showing posts with label Financial Statement. Show all posts
Showing posts with label Financial Statement. Show all posts

Monday, May 4

Non-Current Assets

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This post is part of a series of posts that discuss about financial statements in detail. To access the other posts in this series, click here.



One of the main components of a balance sheet will be the non-current assets. Non-current assets are assets which are not expected to be converted into cash or used up within the next year. I have highlighted the non-current assets portion with a blue rectangular box in M1's balance sheet.

Fixed Assets - This represents the M1's infrastructure that can includes land, buildings, factories, furniture, equipment and so on. Fixed assets can also be seen in other financial statements as Property, Plant and Equipment or PP&E in short. If you refer to section 10 of the notes to the financial statements, you can see that M1's fixed assets consist of leasehold buildings, networks and related application systems, application systems and computers, motor vehicles and so on.


License and Spectrum Rights - This represents the rights and licenses that M1 has acquired to carry out its operations. For M1's case, this could refer to the rights and licenses to deploy broadband and telecommunication services. License and Spectrum rights can be grouped under intangible assets, which are more commonly seen in financial statements. Intangible assets stands for assets that are not physical in nature. If you refer to section 11 of the notes to the financial statements, you can see a detailed explanation of this component.



Staff Loans - This component is rather self-explanatory. It stands for the loans that M1 has made to its staff. If you refer to section 12 of the notes to the financial statements, you can see that the loans are related to the purchase of motor vehicles for its staff.



Interest in subsidiaries - This refers to M1's interest in her subsidiaries. Subsidiaries are businesses or companies that are owned by M1. If you refer to section 12 of the notes to the financial statements, you can find out more details about M1's subsidiaries.


In general, these are the main items of the non-current assets in a balance sheet. There can be other components depending on the nature of the industry which the company is in. In my next post, I will be discussing on the main items of the current liabilities in a balance sheet using M1 as an example.
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Wednesday, April 1

Current Assets

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This post is part of a series of posts that discuss about financial statements in detail. To access the other posts in this series, click here.

One of the main components of a balance sheet is the current assets. So what are current assets ? Current assets are assets which can be easily converted to cash within a relatively short period of time. I have highlighted the current assets portion with a blue rectangular box in M1's balance sheet.



There are many components that makes up the current assets. Usually, they are listed in either ascending or descending order of liquidity. I will be going through each component in the current assets of M1's balance sheet as an example. To add on, the numbers beside each component refers to the specified section in the notes to the financial statements in which more information about the component will be given.

Cash and Cash Equivalents - This is rather self-explanatory. Cash refers simply to cash while cash equivalents can refer to other instruments such as bank deposits or deposits in a money market fund. A money market fund is considered to be of low-risk as it invests in high-quality short-term instruments and debts securities. If you refer to section 19 of the notes to the financial statements, it offers a breakdown of M1's cash and cash equivalents.



Prepayments - Prepayments are payments made by other companies for good and services which they have not received yet by the end of an accounting period. An analogy would be your subscription to newspapers. Let's say you bought one year worth of subscription of Straits Times from SPH. As such, you will have to pay them that one year worth of subscription before they deliver the newspapers to you.

Trade Debtors - This is more commonly known as Receivables. You will see it on other balance sheets more commonly as Accounts Receivables or Trade Receivables. It refers to companies which have purchase goods or services from M1 but has not paid up yet. If you refer to section 16 of the notes to financial statements, M1 has classified this section according to different time periods in which the trade debtors have yet to pay up. Furthermore, the provision for debts due to receivables which are unrecoverable is being listed in this section and the amount which it has written off due to such unrecoverable debts from receivables.



Inventories - Inventories are goods which can be in the form of raw materials, goods which are in the making or the finished goods itself. In M1's case, the inventories are in the form of handsets and accessories since M1 is a telco company. This can be seen in section 15 of the notes to the financial statements.



In general, these are the main items of the current assets in a balance sheet. There can be other components depending on the nature of the industry which the company is in. In my next post, I will be discussing on the main items of the non-current assets in a balance sheet using M1 as an example.
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Saturday, March 21

Balance Sheet

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A balance sheet is a statement that summarize the assets, liabilities and the shareholder's equity of a company. It is useful in helping us to determine the financial position of a company. In this post, I will be using the balance sheet of M1, which is a local telecommunications company. The balance sheet can be seen in the picture below.



The balance sheet can be dividend into 3 parts and these 3 parts are assets, liabilities and equity. So what are these items ? Assets are anything of value, liabilities are debts while equity is the portion of the assets that belongs to the shareholders. These 3 items are related by the following equation.
Assets = Liabilities + Equity
So what is the rationale behind this equation ? Let me explain using an example below.
You wish to buy a car that has a value of $50,000. However, you only have $20,000. Thus you decide to go to a bank to take a loan of $30,000. As a result, you are able to purchase the car. In this case, you took on a loan of $30,000 thus you will have a liability of $30,000 while the other $20,000 came from your pocket, so this $20,000 will be your equity. In all, you will own a car that has a value of $50,000 thus you will have an asset of $50,000.
Similarly, the stockholders of a company contributes capital to a company and the company may take on additional debts to fund the purchase of assets which can help the company to increase its earnings. I have grouped the assets, liabilities and equity with coloured rectangular boxes on M1's balance sheet. The blue stands for the assets, red stands for the liabilites and the green one stands for the equity. In my next post, I will be discussing on what each individual item on the balance sheet stands for.
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