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Balance sheet analysis

Balance Sheet Analysis

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Balance sheet analysis

  1. 1. A Presentation by, Amruth G Karthick Shan
  2. 2. • Balance Sheet is a Financial Statement which presents to the analyzer the Asset and Liabilities of the given Organization or person • It is made for analysis of the financial position of the organization, it is being followed by many companies around the world • Investors analyze Balance sheet along with P/L Account before investing 4/25/2014 Balance Sheet Anaysis 2 of 9
  3. 3. Liabilities Rs. Assets Rs. Current liabilities: Current Assets: Bank overdraft Cash in hand Bills Payable Cash at Bank Sundry creditors Bills Receivable Outstanding Expenses Short Term Investments Unearned Income Sundry Debtors Fixed Liabilities: Closing Stock Long Term loans Prepaid expenses Reserves Accrued Income Capital Long Term Investments Add: Net profit Fixed Assets: Less: Drawings Furniture Less: Income Tax Loose Tools Less: Life Insurance Premium Motor vehicle Plant & Machinery Land & Buildings Patents Goodwill Balance Sheet as on __/__/____ 4/25/2014 Balance Sheet Anaysis 3 of 9
  4. 4. • There are three different methods, • Vertical Analysis: Analyzing a single period financial statement works well with vertical analysis. • Horizontal Analysis: Horizontal analysis is the comparison of data sets for two periods. • Ratio Analysis: Ratios express a relationship between two more financial statement totals, and compare to budgets and industry benchmarks. Five common categories of ratios exist: liquidity, asset turnover, leverage, profitability and solvency. 4/25/2014 Balance Sheet Anaysis 4 of 9
  5. 5. • During the analysis, it is assumed that total assets, total liabilities, total equity & revenue in the financial statements constitute 100%. • The other values in the financial statements are compared with these basic captions • It is then expressed in percentage of the basic caption 4/25/2014 Balance Sheet Anaysis 5 of 9
  6. 6. • Involves comparison of a financial ratio, a benchmark, or a line item over a number of accounting periods. • Horizontal analysis allows the assessment of relative changes in different items over time. • It also indicates the behavior of revenues, expenses, and other line items of financial statements over the course of time. • Accounting periods can be two or more than two periods. Accounting period can be a month, a quarter or a year. • Horizontal analysis can be performed in one of the following two different methods i.e. Absolute comparison or Percentage comparison. 4/25/2014 Balance Sheet Anaysis 6 of 9
  7. 7. • Liquidity Ratios • Current Ratio: Current Assets/Current Liabilities • Quick Ratio: Quick Assets/Current Liabilities • Capital Structure Ratios • Debt-Equity Ratio: Total Debt/Shareholder’s Equity • Debt to Total Capital Ratio: Total Debt/Total Assets 4/25/2014 Balance Sheet Anaysis 7 of 9
  8. 8. • Profitability Ratios • Gross Profit Margin: (Gross profit/Sales)*100= ((Sales – cost of goods sold)/Sales) *100 • Return on Assets: Net profit after taxes/ total assets • Activity Ratios • Inventory Turnover Ratio: Cost of goods sold/average inventory • Debtors Turnover Ratio: Credit Sales/Average debtors 4/25/2014 Balance Sheet Anaysis 8 of 9
  9. 9. 4/25/2014 Balance Sheet Anaysis 9 of 9