December 2010
Intermediate to advanced
848 pages
31h 28m
English
Content preview from Financial Accounting: In an Economic Context
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THE RELATIVE SIZE OF LIABILITIES ON THE BALANCE SHEET
Figure 10-1 contains liabilities as a percentage of total assets, often referred to as the debt ratio, for selected firms. The main financing source for financial institutions is clearly debt. Customer demand deposits and short-term debt are primarily responsible. General Electric's financial subsidiary, which is set up to provide financing to its customers on big-ticket sales, is basically a financial institution, accounting for GE's large debt ratio. Companies like AT&T and Kroger invest heavily in property, plant, and equipment that is financed through debt, while Internet firms have generated most of their financing by issuing equity.
FIGURE 10-1 Liabilities as a percentage of total assets
Internet companies like Yahoo! and Google carry very little debt on their balance sheets, while large manufacturers like Kimberly-Clark and General Electric have debt amounts that are well over 50 percent of total assets. Comment on why such differences might exist.
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