The balance sheet lists the dollar value of what the company owns (assets), what it owes to creditors (liabilities), and the amount contributed by investors (equity). Assets always equal liabilities and equity.

Assets = Liabilities & Equity

Assets are divided into two categories, current and fixed. Current assets are those that can be quickly converted, generally in less than a year. These include inventory, accounts receivable and cash. Fixed assets are those that cannot be easily converted. In the simulation, fixed assets are limited to the value of the plant and equipment (called capacity and automation).

Figure 4.1 The Proforma balance sheet is a projection of the results for the upcoming round based upon the company’s decisions.

Liabilities include accounts payable, current debt and long term debt. In the simulation, current debt is comprised of one year bank notes; long term debt is comprised of 10 year bond issues. Equity is divided into common stock and retained earnings. Common stock represents the money received from the sale of shares; retained earnings is the portion of the profits that was not distributed back to shareholders as dividends, but instead reinvested in the company.