B for Balance Sheet
What is a Balance Sheet ?
We know that financial accounting by and large serves two major purposes :-
- To know the financial performance of a company
- To know the financial position of a company
The Balance sheet right here shows the financial position of a company. At any given time, a balance sheet tells you a business’s worth.
If your mom gives you 1000 Rs for a school project, wouldn't she like to know how the money has been spent? Balance sheet provides a detailed break-up of the money which the investors put into the business
What exactly does a Balance sheet contain?
Balance sheet is based on a very basic equation
Assets = Liabilities + Equity.
The equation is due to the fact that a company has to buy/pay for its assets by either borrowing money (which becomes a liability) or taking it from shareholders who invest in the company ( which is equity).The sum of liabilities and equity gives you the total money that has been put into the business.
What is the necessity for a Balance Sheet?
To see what is owned and what is owed by an organization.
Balance sheet is a snapshot of an organization covering its entire assets, liabilities and shareholders' equity.
Why should stakeholders analyse a Balance Sheet?
- An organization has a multitude of stakeholders ( customers, suppliers, investors, Government, Bankers etc.,). Balance sheet analysis can help these stakeholders identify if the organization meets the requisite criteria for them to be associated with it. Stakeholders can analyse the following and more -
- How much debt the business has
- Whether liquidity is improving or declining (Compare the current assets with the previous year's value)
- How quickly the business converts its receivables into cash (Receivables turnover ratio)
- How many days it takes to replace the entire inventory by sales (Inventory turnover ratio)
- How easily a company can pay its debt obligations (Debt service ratio)
- How efficiently a company is using its assets to generate profit (Return on assets ratio)
From an investor perspective, Balance Sheet can give an idea of how financially stable the company is and how the company finances itself. By analysing a Balance Sheet, investors can find sensible insights and supporting reasons to invest in a stock or to stay away from it.
Happy balancing everybody !
Here's the link to "A for Asset" in case you missed to read it,
We've just gotten started, so stay tuned and follow this space for the next post in #ATOZWITHINDAS
C FOR....... any guesses?
Audit Executive @ Maitra & Chopra | Chartered Accountancy
4 年Thanks for your efforts dear! You made my learnings easy
CA | Business Finance at Wakefit | Ex- EY | Ex- KPMG | Ramjas(D.U) | RVG
4 年Good Initiative, Sruthilaya H. ????
CA & CMA(AIR), Assistant Manager at PWC India
4 年"C" for "Capital"??
Chartered Accountant | Consultant @ Deloitte | CAFND(AIR 44) |
4 年Great piece! Short and crisp reads??
CA | FP&A @Freshworks | ITC Limited Manager - Finance
4 年Here's the link to "A for Asset" in case you missed to read it - https://www.dhirubhai.net/pulse/asset-sruthilaya-h/?trackingId=dCqoJGQp8H%2FZqUZvtP20Fg%3D%3D