One of my favorite devices to introduce concepts in valuation and corporate finance is a financial balance sheet. Unlike an accounting balance sheet, a financial balance sheet is a forward looking instrument. On the asset side of this balance sheet, there are only two categories for assets: assets in place, i.e., the value of investments that have already been made by the firm and growth assets, i.e., the value added by investments that I expect the firm to make in the future. On the liability side of the balance sheet, there are only two items as well: Borrowed money (debt) or owners' funds (equity).
Dealing with Hybrids
Dealing with Hybrids
Dealing with Hybrids
One of my favorite devices to introduce concepts in valuation and corporate finance is a financial balance sheet. Unlike an accounting balance sheet, a financial balance sheet is a forward looking instrument. On the asset side of this balance sheet, there are only two categories for assets: assets in place, i.e., the value of investments that have already been made by the firm and growth assets, i.e., the value added by investments that I expect the firm to make in the future. On the liability side of the balance sheet, there are only two items as well: Borrowed money (debt) or owners' funds (equity).