IFRS and various ratios. Liabilities are classified as "current" or "long-term".

Current liabilities are obligations that are expected to be paid within the next

twelve months or the operating cycle (whichever is longer). Long-term

liabilities are obligations that are not expected to be paid within the next

twelve months or the operating cycle, but in the more distant future. Walt Disney's

current liabilities as of October 2nd 2010 are comprised of accounts payable

and accrued liabilities for 6 billion 109 million dollars. This

balance represents amount due to suppliers and other obligations still

unpaid but due soon. Current portion of borrowings for 2 billion 350 million

dollars needs to be paid in the near future. Un-earned royalties and other

advances are money received from third parties that have not been earned by the

Walt Disney. Walt Disney's obligations that need to be paid in the more distant

future (or past the 12 months following the balance sheet date) are

various borrowings for the amount of 10 billion 130 million

dollars, deferred income taxes for 2 billion 630 million

and other long term liabilities for 6 billion 104 million. The

stockholders equity section of the balance sheet is generally comprised of

two sections which are: "Contributed capital" and "Retained earnings". Capital

stock is an account increased by the par or stated value of the shares issued.

Additional paid-in capital account holds the "excess" amount paid over the "par

stated value". For example, if the par value of a common stock is $1 and the

market price is $10, for the issuance of one share, "Common stock" will increase by

$1 and "Paid in excess of par" will increase by $9. Retained earnings is the

corporations un-distributed earnings or net income less declared dividends.

Sometimes we will see "Accumulated other comprehensive income"

which is the aggregate amount of the other comprehensive income items such as

unrealized gains or losses from market value fluctuations for pension funds,

also possible for foreign currency exchange transactions. We may also see

"Treasury stock" which is the amount of money paid to repurchase corporation's

own common stock. "Non controlling interests" (or minority interest) is the

portion of the equity of subsidiaries not wholly owned by the reporting

company. This information will be reported in the stockholders equity

section if it is applicable to the corporation. Disney's shareholders equity

section shows that the company has preferred and common stock. Please note

that the company states the par value and the number of authorized and issued

shares. Par value refers to the stock value stated in the

corporate charter (it is also known as a legal capital) and enforces some

restrictions for the Corporation's management. They are defined and may vary

depending on the state of incorporation. To minimize these limitations

corporations may select low amounts such as 1 cent or 0.1 cent. Authorized

number of shares this is the maximum number of shares that a corporation can

issue. The number is stated in the corporate charter as well. Issued shares

is the number of shares that already have been issued. This way we can make a

judgment what portion of the authorized shares the company has already issued. If

all the authorized stock has been issued then no more money can be raised from

equity. We can see that as of October 2nd, Disney has not issued any of the

preferred stock. Disney's common stock has 1 cent par value. On October 2nd,

its authorized shares are 4.6 billion and issued shares are 2.7 billion. The

balance in the common stock account is 28 billion 736 million.

This balance combines the "par" and the "excess of par" in its total.

This conclusion can be made because 2.7 billion shares times 1 cent is much less

than the shown balance. Disney's retained earnings as of October 2nd is 34 billion

327 million. "Accumulated other comprehensive loss"

equals to 1 billion 881 million dollars. Treasury stock is accounted for it cost

on October 2nd Disney had 803.1 million shares for the total cost of 23

billion 663 million. Please note that the

Treasury stock decreases the total equity. Non-controlling interest is for

the total of 1 billion 823 million dollars. I wanted to

show you an equity section that better separates the "legal capital" (which was

par value times the number of shares issued). Let's look at a Las Vegas Sands

corporation. You can see that the balance in the common stock account equals the

number of roughly 708 million shares times the $0.001

dollars par value. The amount of "Cash collected from the issuance of stock"

would be the sum of the "common stock" and "Capital in excess of par value" account balances

or 5 million 445 thousand and 413 dollars

IFRS versus GAAP. Both IFRS and GAAP allow the use of

title balance sheet or statement of financial position. IFRS however

recommends the use of statement of financial position. Both IFRS and GAAP

require disclosures about accounting policies and judgments used by

management. Under IFRS current assets are usually listed in the reverse order of

liquidity. For example under GAAP cash is listed first but under IFRS it is listed

last. IFRS has many differences in terminology. For example in the equity

section, common stock is called "share capital ordinary".

Advantages and disadvantages of raising funds through debt. The

advantages are that the funds are raised without giving up any ownership rights.

The interest that is paid is an expense which decreases profits which are taxed,

therefore it decreases the amount of tax income tax paid in improves cash flow.

The disadvantages are that the corporation has to have cash to pay the

periodic interest payments (the "least" frequency would be once a year) and the

principle has to be repaid at maturity. When equity is used to raise cash the

new owners have a right to vote on major issues and to receive assets upon

liquidation as well as dividends. Dividends may be paid (or not) depending

on the Board of Directors decision so the "pro-s" are that the corporation may

decide to share (or not) some of the profits and do not have to deal with

repayment of principal. The downside is that more opinions have to

be considered. Some important ratios that are used are: current ratio which is

computed as we divide the "total current assets" by the "total current liabilities".

It measures corporations ability to pay its immediate obligations. If the company

has a current ratio of more than a 1 it is considered as "favorable". More

conservative analysts look for a current ratio of 2. For the purposes of this

course we will consider current ratio of 1 and more to be "favorable". If current

ratio is too high (for example, 4 or more), analysts usually criticize management

for lost opportunities. "Debt Ratio" is "total liabilities" divided by "total

assets" it measures the portion of assets financed by debt (previously discussed).

The trend analysis shows consecutive periods compared to base period. You can

see the Disney's total assets increased by 3% in 2008,

4% in 2009 and 14% in 2010 compared to 2007. All asset accounts increased

compared to 2007 except for Goodwill and Intangibles (in 2009 where they decreased by 3%).

You can also analyze the changes in the

non current liability and equity accounts compared to 2007. Current

liabilities increased by 2% in 2008, decreased by 22% in 2009 and 3% in 2010.

Liabilities will decrease as the corporation pays in a more accelerated

pattern and will increase when they enter in additional obligation or slow

down their payments. Common stock increased each year which means that

Disney issued more stock. Retained earnings increased which tells us that the

corporation had successful and profitable years and not all profits have been paid

as dividends. The common size balance sheet shows the proportions of the

various accounts compared to total assets. You can see that current assets

represented 33% of the total assets for a News Corp and only 18% for Disney.

Property, plant and equipment net of depreciation represents 26% for Disney

and 11% for News Corp. This approach can be applied to all accounts for the same

company in different periods or comparison of different companies.

If different companies are being analyzed please consider the industry under scrutiny.

Thank you for watching.