Chapter 12
Using Accounting Information
350
The balance sheet is a snapshot of a company’s financial position at a single point in time. For
instance, a company’s balance sheet for the year 2015 may show a large increase in assets and
liabilities compared to its 2014 balance sheet due to its purchase of a large piece of equipment
with a large bank loan during 2015. A user of the company’s financial statements may see the big
increases in the company’s loans and equipment in the 2015 balance sheet, and wonder whether the
company will be able to make the loan payments or whether the company is using the equipment
effectively.There are several analysis tools that can be used to help answer these questions. We will
examine these tools later in this chapter.
Up to this point,we have prepared financial statements for sole proprietorships. Sole proprietorships
are generally smaller in terms of financing, number of employees, and number of locations.
Corporations can be large in size with multiple locations and many employees in different cities.
Because corporations are a very common form of organization in Canada, it is important to
understand how to read the financial statements of a corporation.
For example, the Proctor & Gamble Company (P&G) has operating branches on four continents
that are responsible for selling its approximately 100 brands of consumer products globally.
Obviously, this means the company is financially larger than a sole proprietorship. It also means
that managers of P&G have a lot to track and oversee. Financial statement analysis helps the
internal users (management) evaluate their company’s operations and explain changes to external
users (shareholders/investors).
The presentation of the corporate balance sheet is similar to that of a sole proprietorship’s but usually
has more details and more accounts.The Proctor &Gamble Company Consolidated Balance Sheet
from 2014 is provided in Figure 12.1. It should be pointed out that the equity section in Figure
12.1 looks different from the equity section in a sole proprietorship’s balance sheet that you have
seen before. We will look at the highlighted differences in detail.
