1/19/2015

BankersAdda:AquickglanceonBalanceSheet

AquickglanceonBalanceSheet
Definition:Abalancesheetisadocumentwhichsummarizesacompanys
assets,liabilitiesand
stockholdersequityatapointoftime.Toputitinsimpleterms,abalance
sheetislikeasnapshotof
ahorserace,showsthefinancialpositionofacompanyataparticularpoint
oftime.

Componentsofabalancesheet:
Assets
Liabilities
Ratiosused

Assets:
1.CurrentAssets:Theseareassetsthatmaybeconvertedintocash,sold
orconsumedwithina
yearorless.CurrentAssetsincludecash,marketablesecurities,Account
andnotes
receivables,inventoriesetc.
2.FixedAssets:Fixedassetsarethosetangiblephysicalfacilitiesownedby
anenterprise,which
arepermanent/durableinnature.Fixedassetsarenotturnedover,meaning
theyarenot
convertedintocash.Forexample:Landandbuilding,machinery,tools,
equipmentsetc.
3.IntangibleAssets:Theseassetsdonotexistinphysicalformbutare
notionalpossessions
ownedbyanenterprise.Theseassetsgenerallydonthaverealmoneyvalue
butare
importantforacompany.Forexample:patents,goodwill,trademarketc.
Liabilities:
1.Currentliabilities:Thoseobligationsofacompanywhicharepayableon
demandorwithina
periodoflessthan1yearfromthedateofthebalancesheet.
2.TermLiabilities:Atermliabilityisadebtwhichmaturesafteraperiodof
12monthsfromthe
dateofthebalancesheet
3.NetWorth:Thenetworthofacompanyistheownersstakeinthe
business.Itisaliabilityof
acompanytowardsitspromoters.Itisthereforeanimportantitemonthe
balancesheeton
whichalendingbankercanrely.
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1/19/2015

BankersAdda:AquickglanceonBalanceSheet

4.SpecificReservesandProvisions:SpecificReservesandProvisionsare
createdforthe
paymentoftaxes,dividendsandothercontingencies.
Ratios:
RatiosShowingLiquidity:
CurrentRatioRatioofcurrentassetstocurrentliabilities.
QuickRatioItisanindexofthesolvencyofanenterprise.
Basicallyquickratioistheratioof(Currentassetsinventories)
andcurrentliabilities.
RatioshowingFinancialStability:
DebtEquityRatioThisratioindicatestherelativeproportionof
shareholders'equityanddebtused
tofinanceacompany'sassets.

RatiosShowingProfitability:
a.ReturnoninvestmentratioThisratiomeasurestheoperatingefficiencyof
acompany
withoutregardstofinancialstructure.
b.ReturnonEquityRatioItistheratioofnetincomeofabusinessduringa
periodtoits
stockholders'equityduringthatperiod.
ThanksMadhu!!

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