Balance Sheet Financial Model

Interactive Demo -- EMBA 7200 Corporate Finance

Learning Objective: Understand the balance sheet identity (Assets = Liabilities + Equity), how the income statement flows into retained earnings, and the interconnected nature of financial statements. Adjust the sliders below to explore how changes in one area affect the overall financial structure.

Balance Sheet Controls

Assets

$30M
$60M
$150M
$40M

Liabilities & Equity

$40M
$30M
$100M
$100M
Automatically adjusts to maintain balance sheet identity
$70M

Financial Position

Assets = Liabilities + Equity
$280M = $170M + $110M
Debt-to-Equity
1.55x
Equity Ratio
39%
Current Ratio
2.25x

Assets

Current Assets
  Cash & Equivalents $30M
  Inventory & Receivables $60M
Total Current Assets $90M
Fixed Assets
  PP&E $150M
  Intangibles & Other $40M
Total Fixed Assets $190M
TOTAL ASSETS $280M

Liabilities & Equity

Current Liabilities
  Payables & Accruals $40M
  Short-Term Debt $30M
Total Current Liabilities $70M
Long-Term Liabilities
  Long-Term Debt $100M
Total Liabilities $170M
Shareholders' Equity
  Paid-In Capital $100M
  Retained Earnings $70M
Total Equity $170M
TOTAL LIABILITIES + EQUITY $340M

Income Statement (Last Year)

Revenue $500M
  Less: Cost of Goods Sold ($300M)
Gross Profit $200M
  Less: SG&A Expenses ($80M)
  Less: Depreciation & Amortization ($20M)
EBIT (Operating Income) $100M
  Less: Interest Expense ($26M)
EBT (Earnings Before Tax) $74M
  Less: Income Tax (21%) ($16M)
Net Income $58M
How Net Income Flows to the Balance Sheet:

Net Income of $58M → Retained Earnings (+ $58M)

This shows how profitable operations (measured on the income statement) increase shareholder equity (on the balance sheet). The retained earnings balance you see above reflects accumulated net income, minus any dividends paid out.

Financial Statement Plumbing

Operating Activities: EBIT = $100M → Cash from Operations

Investing Activities: CapEx (Depreciation) = $20M → Cash used for Fixed Assets

Financing Activities: Net Debt Change = $0M → Cash from/used in Financing

These three categories -- operating, investing, and financing -- represent the complete "plumbing" of how cash moves through a firm. Together they explain how the income statement, balance sheet, and cash flow statement are interconnected.