Page 4: The Balance Sheet
To understand the financial position of Cadbury Schweppes at a moment in time, it is necessary to 'freeze' the values of various financial components. These values, or balances, are used to set out the Balance Sheet.
A Balance Sheet shows the relationship between the assets of the business (what the business owns or is owed), and the liabilities of the business (what the business owes). When liabilities are taken away from assets this gives a figure for net assets, which provides an indication of the health of the business at a point in time.
The chart shows a summarised Cadbury Schweppes Balance Sheet for 2004. It sets out the overall structure of the Balance Sheet, but simplifies some of the individual balances. Here is a simple explanation of the Balance Sheet.
1. Fixed assets consist of two main elements.
- Intangible Assets are ones that help to generate wealth for the business over time but don't have a physical presence. For example, a major intangible for Cadbury Schweppes is the 'goodwill' associated with brands that it has acquired, such as Halls. The fact that Halls is an existing high profile brand that consumers recognise and connect with gives Cadbury Schweppes a valuable asset that will generate sales and profits over a long period. Internally generated brands, like Cadbury Dairy Milk, are not on the balance sheet as they have not been purchased at a known cost.
- Tangible assets are those that exist physically; these include the costs of factories and machinery used to make the products and the offices that the staff work in around the world.
2. Current assets consist of stock (Inventories), trade and other receivables (Debtors, i.e. amounts of money customers owe for goods that they have not yet paid for), and cash. After production, supplies of chocolate and sweets are stored for a short period of time until a customer makes an order when they are delivered to wholesalers and supermarket chains such as Tesco. Stocks are counted as current assets because they are quickly turned into cash. Tesco and others typically buy from Cadbury Schweppes on credit - the money owed is counted as a current asset, and the company owing it is a debtor.
We then deduct the liabilities (see point 3) from the assets.
3. Current liabilities consist of any payments that Cadbury Schweppes must pay out in the short-term (typically under a year) such as payments to suppliers for cocoa and sugar. In addition, it would include short-term borrowings and overdrafts.
4. Non-current liabilities consist primarily of bank loans, money owed to employees to pay their pensions, etc.
5. The net assets/liabilities figure is then calculated by deducting the two main types of liabilities from the two main categories of assets.
6. The final section of the Balance Sheet shows the amount of shareholders' funds. This is the price paid by the shareholders for their initial share capital and the retained profits made by the company.
At the end of 2004 the net assets of Cadbury Schweppes and thus the total equity (shareholders' capital) was £2,300m. Visit The Times 100 website for updates, which will be released as soon as the results for 2005 are available.