# 4.1. Functional balance sheet

The functional balance sheet is no more than the rearrangement of the itens of a (“regular”) balance sheet.

The assets are divided between:

• Investment assets
• Operating assets
• Treasury assets

Equity+Liabilities are divided into:

• Permanent financing
• Operating liabilities
• Treasury liabilities

##### Investment assets

Investment assets are long-term assets, and as such correspond to the non-current assets. Using the items of the CASFLO APP’s balance sheet, these are the elements of the investment assets:

##### Operational assets

Operational assets are all current assets of the balance sheet which a company needs to run its business. Using the items of the CASFLO APP’s balance sheet, these are the elements of the operational assets:

Be aware that other current assets and cash and deposits may be part of the Treasury assets (below). If any current asset would be not necessary for running the company, then it should quoted as treasury. The same applies to the concept of cash surplus (the amount of cash that the company does not need run), which should be considered as a treasury asset. CASFLO APP was designed in such a manner that every other current asset item or every cash and deposit items is considered needed for the company, hence it is an operational asset.

##### Treasury assets

The treasury assets (for the purpose of the functional balance sheet) are assets that have liquidity and that are not needed to run the company.

As stated above, CASFLO APP was designed in such a manner that every other current asset item or every cash and deposit items is considered needed for the company, hence it is an operational asset. Therefore there are no Treasury assets in CASFLO APP.

##### Permanent financing

Permanent financing is equal to the sum of Equity with non-current liabilities. Equity includes all items of the equity block of a balance sheet. Using the items of the CASFLO APP’s balance sheet:

The non-current liabilities within CASFLO APP’s balance sheet organization are:

##### Operational liabilities

Operational liabilities are all current liabilities of the balance sheet which a company needs to run its business. Using the items of the CASFLO APP’s balance sheet, these are the elements of the operational liabilities:

In practice, the other current liabilities itens can instead be part of the treasury liabilities if these did not influence the running of the company. By design, CASFLO APP considers them as operational.

##### Treasury liabilities

The treasury liabilities are liabilities itens that are not needed to run the company. You can consider an other current liability as part of treasury liabilities if it is not necessary for the company.

### Financing investment assets through permanent financing

Considering the liquidity and enforceability of each the account, it is advisable that the investment assets (long-term assets with less liquidity) should be financed through capital that is forecasted to stay in the company on the long run: the permanent financing. The permanent financing includes the equity and the noncurrent liabilities. As the name “permanent financing” signals that this is the company’s long-term financing and should be used to invest in productive capacity.

$$Permanent\ financing=Equity+Noncurrent\ liabilities$$

If the investment assets are higher than the permanent financing, it means that the company is financing its long-term assets with short-term resources. Although it may be feasible and sustainable it can impose risks to the management of the company if the company is not generating enough cash through its operations to be able to cover its debt service. If that occurs the management will have to keep renegotiating its financing, a situation that implies more uncertainty.

The opposite scenario, where permanent financing is larger than investment assets is also undesirable because long term financing usually implies a higher cost of financing.

#### Example Case: Dutch Fabric Innovations

Here you can find the Functional Balance Sheet retrieved from the forecasting of the Dutch Fabric Innovations example case.

 Investment assets 2019 2020 2021 2022 2023 Tangible assets 23 551 17 770 217 744 243 565 200 485 Intangible assets 149 108 138 398 127 688 116 978 106 268 Other noncurrent assets 0 0 0 0 0 Total 172 658 156 168 345 431 360 542 306 753
 Operational assets 2019 2020 2021 2022 2023 Clients 0 246 728 537 454 1 007 275 1 585 266 Inventory 0 179 544 387 714 742 032 1 162 837 Advances to suppliers 0 0 0 0 0 State and other public entities (receivables) 5 410 0 0 0 0 Other debtors and current assets (operating) 0 0 0 0 0 Total 5 4010 426 272 925 168 1 749 307 2 748 103
 Permanent financing 2019 2020 2021 2022 2023 Issued capital 100 000 200 000 300 000 300 000 100 000 Other equity instruments 100 000 50 000 0 0 0 Other equity changes 0 0 0 0 0 Retained earnings 0 -72 721 14 403 574 089 2 081 535 Net income -72 721 87 125 559 685 1 507 446 2 918 994 Bank loans 0 117 000 105 000 93 000 81 000 Other noncurrent liabilities 0 0 0 0 0 Total 127 279 381.403 979.089 2.474.535 5.181.529
 Operational liabilities 2019 2020 2021 2022 2023 Suppliers 40 189 535 204 1 082 648 1 999 618 3 060 107 Shareholders loans 0 0 0 0 0 Government payables 0 40 900 213 349 560 451 1 071 096 Other accounts payables 53 322 0 66 677 20 169 0 Other current liabilities 0 0 0 0 0 Total 193 510 801 103 1687 672 2755 237 4246 201

#### Example Case: Golden Days

Here we can find the Functional Balance Sheet from Golden Days.

 Investment assets 2019 2020 2021 2022 2023 Tangible assets 5 142 24 320 17 200 26 645 18 406 Intangible assets 0 0 0 0 0 Other noncurrent assets 50 000 50 000 50 000 50 000 50 000 Total 55 142 74 320 67 200 76 645 68 406
 Operating assets 2019 2020 2021 2022 2023 Clients 0 59 116 117 822 145 052 162 370 Inventory 0 0 0 0 0 Advances to suppliers 0 0 0 0 0 State and other public entities (receivables) 0 0 0 0 0 Other debtors and current assets (operating) 0 0 0 0 0 Total 0 59 116 117 822 145 110 162 370
 Permanent financing 2019 2020 2021 2022 2023 Issued capital 200 000 400 000 500 000 500 000 500 000 Other equity instruments 0 0 0 0 0 Other equity changes 0 0 0 0 0 Retained earnings 0 –   36 968 –   15 585 150 951 368 272 Net income –   36 968 21 383 166 536 217 321 249 310 Bank loans 0 0 0 0 0 Other noncurrent liabilities 0 0 0 0 0 Total 200 000 421 383 666 536 868 272 1 117 582
 Operating liabilities 2019 2020 2021 2022 2023 Suppliers 13 808 25 533 75 419 88 503 101 899 Shareholders loans 10 000 20 000 40 000 40 000 60 000 Government payables 0 9 164 71 373 93 138 106 847 Other accounts payables 904 4 438 214 3 666 0 Other current liabilities 0 0 0 0 0 Total 24 712 59 135 187 004 225 306 268 746

Next Section: 4.1.1. Working capital