A Quick Look At ARM Holdings Plc’s Balance Sheet

A whistle-stop tour of Arm Holdings plc (LON:ARM)’s financial notes.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

In this series of articles looking at financial statements, we are going to see if we can delve into ARM Holdings (LSE: ARM) (NASDAQ: ARMH.US)’s balance sheet for the year ended 31 December 2012.  If you are new to investing, or are just baffled by some of the terms that make up a balance sheet, then read on.

Again, I will start by noting the balance sheet is only one of three main financial statements. Both the cash flow and income statements are as important, and should be viewed in conjunction to gain the full picture.

In addition to cash, ARM has short-term deposits of £340m.  Short-term deposits simply refers to a bank account with a set maturity date, which we can see from the notes is an average of 190 days.  The long-term deposits of £141m attract the higher return but have a maturity of 489 days on average.

Cruel accruals

A quick note on prepaid expenses, too.  Financial statements are prepared on an accrual accounting basis.  What that means is that anything not relating to 2012 should not be reported in the profit for that year.  ARM’s prepayments have jumped from £31m to £136m, meaning there is something paid for during the year which is going to be utilised in the future.  Note 11 explains that £104m was used to acquire rights to MIPS technologies.  This balance will be re-classed in intangible assets in the subsequent year assuming all goes ahead.

It’s interesting to see ARM’s business model in action in the balance sheet.  The company generates revenue by designing and not by manufacturing products.  This can be seen in the £36m of fixed assets (property, plant and equipment) in comparison with £519m of intellectual capital in the form of goodwill.  Note 15 reveals that the acquisition of Artisan in 2004 still represents £485m of that total because of a continued contribution from its ability to develop faster and more power-efficient microprocessors.

I’ll take that income later

Finally, I would mention deferred revenue, which is split into current (less than one year) and non-current for a total of £150m of the £577m in revenue ARM generated in the year.  ARM have invoiced for but not necessarily received the cash for this £150m and are committed to providing the service.  This is accrual accounting in action again, and it is especially useful to see as this revenue stream will be released into profits in the next few years.

Hopefully that whistle-stop tour was helpful although as ever there are many more terms that could be cleared up, too.

If you found this introduction to balance sheets useful, there are more investing hints and tips in this completely free report. Why not take a look to see if you can get one step ahead of the herd?

If you are feeling more adventurous, try 10 Steps To Making A Million In The Market, which can set you on the right path on your investing journey.

Both reports are completely free and can help you avoid the common novice investor mistakes

> Barry does not own shares in ARM Holdings.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

More on Company Comment

Hand of person putting wood cube block with word VALUE on wooden table
Company Comment

Value has been building behind the Diageo share price

Despite the business growing, the Diageo share price first reached its current level just over 19 months ago and hasn't…

Read more »

Older couple walking in park
Investing Articles

5 stocks to buy for high and rising dividend income

I can see a host of shares to buy on the FTSE 100 offering me exceptional levels of income. Here…

Read more »

Young mixed-race woman looking out of the window with a look of consternation on her face
Investing Articles

I don’t care if FTSE 100 shares fall further, I’m buying them today

I'm happy to go shopping for FTSE 100 shares today, even though I accept that they could have further to…

Read more »

Happy young female stock-picker in a cafe
Investing Articles

Rolls-Royce shares are down 18% in a month and I’m finally going to buy them

Investors who bought Rolls-Royce shares have been repeatedly disappointed, but I'm willing to take a chance on them before they…

Read more »

Storytelling image of a multiethnic senior couple in love - Elderly married couple dating outdoors, love emotions and feelings
Investing Articles

How I’d invest £10k in a Stocks and Shares ISA today

Now looks like a good time to buy cheap FTSE 100 shares inside a Stocks and Shares ISA. These are…

Read more »

Black father holding daughter in a field of cows
Investing Articles

Today’s financial crisis is the perfect moment to buy cheap shares

I'm building a portfolio of FTSE 100 stocks by purchasing cheap shares whenever I see an opportunity. There's a good…

Read more »

Long-term vs short-term investing concept on a staircase
Investing Articles

I’d buy Tesco shares in October to bag their 5.4% yield 

Tesco shares have fallen lately but I think this makes them attractively valued for a dividend stock I would aim…

Read more »

Young mixed-race woman looking out of the window with a look of consternation on her face
Investing Articles

I would do anything to hold Diageo in my portfolio (but I won’t do that)

Diageo is one of my favourite stocks on the entire FTSE 100 and I'd love to hold it, but one…

Read more »