A quick glance on Balance Sheet Definition: A balance sheet is a document which summarizes a company’s assets, liabilities and stockholders equity at a point of time. To put it in simple terms, a balance sheet is like a snap shot of a horse race, shows the financial position of a company at a particular point of time. Components of a balance sheet: Assets Liabilities Ratios used Assets: 1. Current Assets: These are assets that may be converted into cash, sold or consumed within a year or less. Current Assets include cash, marketable securities, Account and notes receivables, inventories etc. 2. Fixed Assets: Fixed assets are those tangible physical facilities owned by an enterprise, which are permanent/durable in nature. Fixed assets are not turned over, meaning they are not converted into cash. For example: Land and building, machinery, tools, equipments etc. 3. Intangible Assets: These assets do not exist in physical form but are notional possessions owned by an enterprise. These assets generally don’t have real money value but are important for a company. For example: patents, goodwill, trade-mark etc. Liabilities: 1.Current liabilities : Those obligations of a company which are payable on demand or within a period of less than 1 year from the date of the balance sheet. 2.Term Liabilities: A term liability is a debt which matures after a period of 12 months from the date of the balance sheet 3.Net Worth: The net worth of a company is the owner’s stake in the business. It is a liability of a company towards its promoters. It is therefore an important item on the balance sheet on which a lending banker can rely. 4.Specific Reserves and Provisions: Specific Reserves and Provisions are created for the payment of taxes, dividends and other contingencies. Ratios: Ratios Showing Liquidity: Current Ratio - Ratio of current assets to current liabilities. Quick Ratio - It is an index of the solvency of an enterprise. Basically quick ratio is the ratio of (Current assets-inventories) and current liabilities. Ratio showing Financial Stability: Debt-Equity Ratio - This ratio indicates the relative proportion of shareholders equity and debt used to finance a companys assets. Ratios Showing Profitability: a.Return on investment ratio- This ratio measures the operating efficiency of a company without regards to financial structure. b.Return on Equity Ratio- It is the ratio of net income of a business during a period to its stockholders equity during that period. Read more: bankersadda/2015/01/a-quick-glance-on-balance-sheet.html#ixzz3P4ZDpmq3
Posted on: Sat, 17 Jan 2015 10:18:43 +0000
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