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Balance Sheet Tutorial
In this section, we have selected two large Canadian corporations of high regard in worldwide markets for some comparative balance sheet analysis. The purpose is to illustrate to investors the need to investigate more than a few quick ratios, or simply act on brokerage recommendation bulletins to appreciate where they should channel their money.
The Balance Sheet is a financial report on the state of a company. It should be viewed as more than a freeze frame capture of financial results. Proper analysis leads the investor to an interesting story about an industry, and the business practices and management capabilities of the company behind the stark numbers registered on the page. It should twig your curiosity to screw down deeper into the full story and introduce the “whys” behind all your investment opportunities.
The first Balance Sheet is for Research In Motion, a relative newbie in the high-tech community. RIM shot into prominence on the wave of its cutting edge, Blackberry wireless communication technology. This Balance Sheet was chosen because it is a good representation of many positive characteristics you should be looking for.
*You might want to consider printing out these balance sheets, the article spans a few pages, thus it might be difficult to understand the figures without the balance sheets in front of you. Alternatively, you could open this page in another window.*
Research In Motion Limited Incorporated under the Laws of Ontario (United States dollars, in thousands)
| As at | 3-Mar-07 | 4-Mar-06 |
| Current Assets | ||
| Cash and cash equivalents | $677,144 | $459,540 |
| Short-term investments | 310,082 | 175,553 |
| Trade receivables | 572,637 | 315,278 |
| Other receivables | 40,174 | 31,861 |
| Inventory | 255,907 | 134,523 |
| Other current assets | 41,697 | 45,453 |
| Deferred income tax asset | 21,624 | 94,789 |
| 1,919,265 | 1,256,997 | |
| Investments | 425,652 | 614,309 |
| Capital assets | 487,579 | 326,313 |
| Intangible assets | 138,182 | 85,929 |
| Goodwill | 109,932 | 29,026 |
| Deferred income tax asset | 8,339 | - |
| Total Assets | $3,088,949 | $2,312,574 |
| Current Liabilities | ||
| Accounts payable | $130,270 | $94,954 |
| Accrued liabilities | 280,438 | 145,330 |
| Income taxes payable | 102,446 | 17,584 |
| Deferred revenue | 28,447 | 20,968 |
| Current portion of long-term debt | 271 | 262 |
| 541,872 | 279,098 | |
| Long-term debt | 6,342 | 6,851 |
| Deferred income tax liability | 52,532 | 27,858 |
| 600,746 | 313,807 | |
| Shareholders’ equity | 2,488,203 | 1,998,767 |
| Total Liabilities | $3,088,949 | $2,312,574 |
The second Balance Sheet is that of Bombardier Inc., a Canadian based global force in aerospace and ground mass transportation, most notably mid-sized aircraft production. The design and build capabilities of the company has created an enormous impact on rail, commuter, air and leisure transportation products and systems, it has almost single-handedly put Canada “on the map” as a world leader in this field.
Despite huge success, all is not well with Bombardier, and their Balance Sheet is used in this study to illustrate some of the alarm bells an investor should hear when reviewing a less-than-satisfactory Balance Sheet.
Bombardier INC. Historical Financial Summary Consolidated Balance Sheets As At January 31 (in millions of U.S. Dollars)
| 2007 | 2006 | |
| Assets | $2,648 | $2,917 |
| Cash and Cash equivalents | 1129 | - |
| Invested Collateral | 1 789 | 1 684 |
| Receivables | 1 042 | 1 457 |
| Aircraft Financing | 3 961 | 3 805 |
| Inventories | 2 936 | 3 090 |
| Property, plant and equipment | 2 286 | 2 142 |
| Goodwill | 390 | 270 |
| Fractional Ownership deferred costs | 813 | 653 |
| Deffered Income Taxes | 461 | 384 |
| Accrued benefit assets | - | 237 |
| Assests held for sale | 1 122 | 843 |
| Total Assests | $18,577 | $17,482 |
| Liabilities and Shareholder’s equity | ||
| Short-term borrowings | $- | $- |
| Accounts payable and accrued liabilities | 6 839 | 6 866 |
| Advances and progress billings in excess of related costs | 2 443 | 2 191 |
| Fractional ownership defferred revenues | 487 | 325 |
| Deferred income taxes | - | 9 |
| Long-term debt | 5 080 | 4 747 |
| Accrued benefit liabilities | 995 | 877 |
| Liabilities related to assets held for sale | - | 42 |
| Preferred Shares | 347 | 347 |
| Common shareholders’ equity | 2 386 | 2 078 |
| Total Liabilities | $18,577 | $17,482 |