Financial structure is the right side of the balance sheet. It reflects the stakeholders that have a claim against the assets. Here is a typical Capstone® balance sheet:
Typical Balance Sheet
| ASSETS | LIABILITIES & OWNER'S EQUITY | |||
| Cash | $4,000 | Accounts Payable | $7,000 | 7.0% |
| Accounts Receivable | $9,000 | Current Debt | $6,000 | 6.0% |
| Inventory | $11,000 | Long Term Debt | $37,000 | 37.0% |
| Total Current Assets | $24,000 | Total Liabilities | $50,000 | 50.0% |
| Plant and equipment | $114,000 | Common Stock | $21,000 | 21.0% |
| Accum. Depreciation | ($38,000) | Retained Earnings | $29,000 | 29.0% |
| Total Fixed Assets | $76,000 | Total Equity | $50,000 | 50.0% |
| Total Assets | $100,000 | Total Liab. & O. E. | $100,000 | 100.0% |
If you imagine using a bulldozer to scrape the assets into a pile, a group of representatives would surround to the rubble and lay claim to it:
| Representative | Claim | Primary Interest |
| Vendor (Accounts Payable) |
$7,000 |
Current Assets |
| Banker (Current Debt) |
$6,000 |
Current Assets |
| Bond Holder (Long Term Debt) |
$37,000 |
Plant & Equipment |
| Stockholder (Common Stock) |
$21,000 |
Plant & Equipment, Working Capital |
| Management (Retained Earnings*) |
$29,000 |
Plant & Equipment, Working Capital |
* Retained earnings is the portion of profits not distributed to shareholders as dividends. While technically the money belongs to the shareholders, it is controlled by management.
The balance sheet always balances because we are matching “stuff” with “people that paid for the stuff.” These people have separate agendas. They choose measures that support their agenda, and they pressure management to meet or exceed their performance targets.