In this module, we will focus on the five documents that constitute annual reports. These five documents are: the balance sheet, the income statement, the cash flow statement, the statement of changes in equity, and the notes to the balance sheet. These five documents are mandatory following the International Accounting Standards. In this class, we will focus on the balance sheet. The balance sheet represents the snapshot of the company in a precise moment of time, where this precise moment of time is represented by the end of the financial year. Usually, the end of the financial year is represented by the 31st of December or the 31st of March. The structure of the balance sheet is a dual structure, in which we can find the assets section and the equity and liabilities section. If we look at the assets section, in here, we can find the resources that are available for the company and that are useful in order to produce value for the company itself. While in the equity and liabilities section, we can find the rights of those people that own the resources. Now, let's see the structure of both of these sections. Let's start from the assets section. The assets section is represented by two main areas. We can find the so-called non-current assets, and then we have a second area which is defined as current assets. What's the difference between them? Well, in the non-current assets, we can find all of the resources that are available for the company for a period of time which is higher than one year. While in current assets, we can find all of the resources that are available for the company for the next 12 months, so basically within the next year. If we look at the non-current assets, we can find three main categories of resources. We have the so-called tangible resources. These tangible resources are represented by resources that are available for the company for a period of time which is higher than one year, and these resources are characterized by the fact that we can see them and we can touch them. The typical example is represented by property, plant, and equipment. Then we have a second category of non-current asset, which is represented by intangible assets. These intangible assets, again, are resources that are available for the company for a period of time which is higher than one year, but we cannot see them, nor we can touch them. For example, we have software, we have research and development activities, patents, licenses. Finally, we have a third category of non-current assets, which is represented by financial resources. In this case, we are talking about money, money that is available for the company for the long term. Usually, this money, these financial resources, are represented by equity investments of the company in subsidiary, joint venture, and associates. So basically, we are talking about the fact that the company is investing money in other companies in order to receive back some financial incomes. So given that this is a long-term investment, we are characterizing these within the non-current assets. Pay attention, because this element of the financial non-current assets can be also classified within the current section in the moment in which these resources are available for the company within the next 12 months. Indeed, if we look at the current assets, we can find, let's say, three main categories of resources. The first category is represented by cash and cash equivalents. So basically, money which is immediately available for the company. Then we have a second category that is represented by trade receivables. Also in this case, we are talking about invoices that are issued by the company for product or service delivery, and so the company will receive back the money from the customer, because the customer will pay for the invoice in the next month, usually within the next year. Finally, we have a third category of current assets, which is represented by inventories. Also, inventories will become finished products. They will be transformed into trade receivable, and finally, they will become cash. That's the reason why we are going to classify inventories within the category of current assets. So basically, that's the main structure of the assets section. We are going to list the resources that are available for the company over the long run, and then within the next 12 months. Then we have the second section in which you can find, as I said, the rights of those people that own the resources. In the equity and liabilities section, as we can imagine from the title, we can identify, let's say, two main categories of owners of these resources. We have on the one hand, the so-called shareholders' equity. In this case, we are talking about the rights that are owned by the owners of the company, so the shareholders that put the capital inside the company itself. Then we have a second category which is represented by the so-called third part liabilities. We can find the rights of those people that are not the owners of the company, but still that have provided these resources inside the company itself. These third part liabilities, following the structure of the assets, can be still divided into two main categories. We can have the so-called non-current liabilities, if you're talking about liabilities that are due by the company over the one-year time horizon. On the opposite instead, we have the so-called current liabilities, if you're talking about again, liabilities that are due by the company during the next 12 months. So basically again, long-term debts and short-term debts, where the difference between the classification of these liabilities in the non-current and current one is represented by the year. So those liabilities that are due over the year are included into the non-current one, otherwise, they're listed as current liabilities. So that's basically the overall structure of the balance sheet. Given that we are listing resources on the one hand and the rights of those people that own resources, we should have that in whatever moment of time, these two section should be the same. I mean, that the total assets should be always equal to the total equities and liabilities.
