Question

Question 4 Discuss how you might expect the financial statements reported by a high tech company to differ from that reported by a financial firm. You should make sure to carefully consider differences in assets and liabilities. [3 marks]

Answer 1

Differences in financial statements:

The main differences lie in the following areas:

• Owner’s equity: the owner’s equity section in case of a high tech company or any major corporations would be labelled as “shareholders equity” as this section would include shares of stock outstanding, dividends paid, retained earnings etc. In case of a financial firm this section would contain only dollar amounts contributed by company owners as well as outside investors.
• Assets: the one major difference in the assets section is that corporations buy stock in other corporate businesses in order to build network of subsidiaries, bring dividend income or generate capital gains on retained earnings. They also hold bonds in other companies that would put their retained earnings to more productive use. In case of financial firms they are likely to list their checking or savings account in their balance sheets.
• Liabilities: The liabilities section of a balance sheet can look different between big corporate businesses & small financial firms, due to additional financing options available to corporations. Corporate liability sections are likely to include bonds payable, for example, reflecting the amount of bond interest and principal owed to bondholders. Large corporations in established industries are also more likely to owe money to other companies in the same industries. Large corporate banks lend large sums of money to each other on a daily basis, for example. Financial firms are more likely to list simple short- and medium-term debts such as credit accounts, bank loans and lease payments.

Hence the financial statements only differ with the items in the assets or liabilities of the balance sheet. Big corporations may have more number of items to be listed because of the size of their business compared to an ordinary financial firm which may not have that many dealings.

Student,

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