Lezione del 24 settembre di Economia aziendale

Non current assets are those assets that the entity will be maintain for many

years. Non current assets typically include tangible assets and intangible

assets, and assets related of some kind of financial security. We might have

shares of other companies, so our business entity is the owner of a shares of

other business entity, if this ownership is strategic, more than 50%, this must

be registered under this item that is called investments in association enjoy

(non si sente l’ultima parola). If this ownership is non significant, this must be

classified as generic financial asset.

• Property, plants and equipment

– Long-term assets that have physical substance (tangible assets)

– Expected to be used in the operations of the entity for many years

– E.g. : land, buildings, and machinery…

• Investment property

– Land or a building (including part of a building) or both, held to earn rentals or

for capital appreciation or both

– It includes properties in the course of construction or development

Then we have some tangible assets, this are resources by the business entity in

order to manage the production process of their product this is the case of

property, plants and equipment. There are typically used for many years; for a

manufaction company is an important decision and when you make the

decision is typically quite difficult to revise this decision.

What is the difference between this two, they are both tangible assets, the

difference is that under property, plants and equipment we have typically

manufactory companies that use the row material to finish project so for

production; while investment property is the same type of asset, but the

difference is that assets are used for rental or capital decision.

• Deferred taxes

– Expected long-term taxation benefits

• Agricultural assets (a.k.a. Biological assets)

– Living plants or animal

Business entity is required to pay taxes, sometime we have to pay taxes in

advantacge or they can have some kind of the taxation benefits that will be

materialising in a long period of time. The amount can be recordered in the

assets.

Agricultural assets: asset that is very peculiar of certain type of companies,

that work in the agricultural and pharmaceutical companies, and can also be

recordered in the balance sheet.

• Intangible assets

– Assets with non-physical substance: trademarks, brand names, patents,

licenses, goodwill…

– Goodwill: Intangible asset that arises as a result of the acquisition of one

entity by another for a premium value

• It is the difference between the amount paid and the value of net assets

acquired

The main type of tangible assets are trademarks, brands patterns licences ecc

The trademarks are basically the right to commercialize a product or a service

under a specific name, if this name is well reputed in the market of course this

gives a business entity an advantage respect the other business entity, and the

same is for the brand name, so if you sells a cola with the brand coca cola

typically you can sell with higher price respect other competitors even if other

entity are using great material, why? Because the customer ricognize a value in

that brand, this can be recognize as a resource of a business entity.

Patents give the exclusive right to commercialize an invention, and of cours

this is a barrier for competitors to enter the same patent and if I don’t have

competitors I can’t make the prize higher, so having a patent is important

because protect a specific product against competitors, so this can be

recognize as a resource of a business entity.

Licenses is basically the right to use a technology that has been patent by

another business entity.

Goodwill is a kind of intangible assets that is generated after the acquisition of

another business entity at a price that is higherwith the respect with the value

that is reported in the balance sheet.

We have 2 entities, A B, let’s say entity A is a pharmaceutical company

acquiring a biotechnology. B is developing a new interesting technology and A

is interested in this technology, and wanted to incorporate this technology in

his corporations; we can see a simple balance sheet of this two entity. A offers

to the owner of entity B 0.8 mln dollars in exchange of the ownership of entity,

this is a market transaction, the result of a negotiation. Now the problem is,

now that A has acquired B, we have all the assets and all the liabilities, but

there is a difference between the acquisition price and the value of the equity

of the entity B.

So more specifically, after the transaction, we could expect:

First the cash of entity A will decrease, they have to use 0.8 mln dollars from

this available amount of cash, so we could expectation that after this

transaction cash will be reduced on 0.8mln.

Then we can expect that item Plant and equipment will increase by 0.6

because they are purchasing; and also the liabilities, because they are

purchasing also the debt of entity B, so liability will be increasing of 0.2. if we

look at the total, we can se the asset that has been acquired and the liability

that has been acquired and this decreasing a level of cash

We can se that the total asset is 2.9mln while the total liability and equity is

3.2mln, so the equation is not equal anymore, because the entity A has paid

something more for the acquisition of entity B with the respect to the value of

the asset that has been acquired. How can we solve this problem? By

introducing an item that we call goodwill

And value of this goodwill, is indeed given by the difference between the

acquisition price 0.8mln and the value of the next asset that have been

acquired, in this case 0.5, so basically in the balance sheet we can recognize

that entity A has acquired some resources who’s value is higher respect at

what were reported in the original balance sheet. The main point is that the

information that is reported in the balance sheet even though they should

reflect the marker value of the resources, so if there is a market transaction

between A and the owners of the entity B, the price can be different with the

numners they were reported in entity’s B balance sheet, so the problem was in

the balance sheet of entity B not in the price.

Suppose that you have a starter business, you have very good idea, has a ot of

potential, but in order to convert this idea into a business you have to do a lot

of investment, you have to purchase machinery etc… so you are missing a lot

of resources to be able to commercialize the product. So you have a good idea

and a lot of potential, this potential is noticed by a company that have ready all

this resources thai you need in order to put the idea on the market but is

interest to acquire some market in this idea. So if you are alone to start a

business can be really hard at the beginning; but if you combine the idea of the

startups with the resources already available by another company you can

have the idea ready.

DIFFERENT EXAMPLE

Here we have the non current assets first and then the current assets; if we

take a look to the non current assets we can see the goodwill property plant

and equipment, this is the largest non current assets, if we take a look on the

current assets we have inventories, what kind of company are we talking

about? A company who’s value of brands is very high, a company who’s value

of inventory s high, what kind of company can be? A manufactories company;

which are the industries were rents play a key role? Luxury. Also goodwill is

really high because they made a lot of acquisitions, integrate many other

brands, and pay a lot of money to purchase this brands.

What kind of company is this one? We have quite limited goodwill, it’s a

construction company, why? Because they have a lot of investment properties.

We can find item that are super specific of this company, like rent and other

receivables, this are customers that have benefit from the use of the building

and they have to still required to pay this apartment.

Again goodwill, and a lot of intangible assets a lot of plant and equipment, and

then a lot of inventories. Probably a manufacturing company, instead of having

brands we have patents, so the value of this intangible assets is not related to

brand but is related to patents; this is a pharmaceutical company, patents are

important in order to preserve technology and commercialization of a specific

medicine, and so the value of this advantage is some what described by the

intangible value pf assets. Also pharmaceutical companies typically have a lot

of acquisition so they can be very active in acquisition so they have pretty high

goodwill. We have also a huge level of inventories and a quite hight value of

trade receivables.

• Liabilities that can be classified either as current or as non-current

• Liabilities classes are:

– Borrowings

– Other financial liabilities

– Trade and other payables

– Tax liabilities

– Provision

FINANCIAL LIABILITIES

• Borrowings

– All types of debt-funding that requires interest payments (e.g. a bank loan)

– They can be secured or unsecured : The provider of a secured debt has a

priority* claim over the entity’s asset in event of liquidation

• Other financial liabilities

– Other contractual obligations to deliver cash and other financial assets to

another entity

* Priority establishes the order of who has the highest claim to the proceeds

from the sale of assets

This referred basically on debt founding, that is obtain by the business entity

and in order to be classified as a financial liabilities this debt-funding that

requires interest payments. So If you approach bank to give you the money,

the bank will be happy to give you the money, of course you will be required to

give the money back plus the payment of the service, typically refers to the

interest. So if this kind of contract is based basically this is an obligations, you

have to give the money back, and this obligation can refer to current or non

current liability, if is less than one year is current liability; if is more than one

year this is non current liability.

They might be other financial liabilities, this typically involve a particular type

of financial security, that can be related to the relative asset.

OTHER LIABILITIES

• Trade and other payables (a.k.a. Accounts payable)

– Cash expected to be paid to suppliers for the purchase of goods or services

– Typically this is a current liability

• Tax liabilities

– The total amount of tax that an entity is required to pay as the result of the

past occurrence of a taxable event

• Provisions

– Liabilities for which the amount or timing of the expected sacrifice is

uncertain

– E.g.: Employee benefits (sick leave or long service