4. A SNAPSHOT that provides a financial picture of a
company at a specific point in time.
Usually that time is the last day of a
month, a quarter, or a financial year.
Standards of accounting dictate that at least two “snapshots” or periods
are shown.
For example we can look at the balance sheet for a company as of
December 31st, 2012 and December 31st, 2013.
6. 1. ASSETS The resources and items
you OWN that have
economic value, such as
cash, accounts receivable,
buildings, equipment, and
other things used to
generate revenue or income
The balance sheet provides information on:
7. 2. LIABILITIES
The debts you OWE to
others, such as bank loans,
accounts payable, and
mortgage loans.
The balance sheet provides information on:
8. 3. EQUITY
What the owners of the
business would have left
over after selling all of the
assets and paying off all
the liabilities.
The balance sheet provides information on:
9. 1. ASSETS
2. LIABILITIES
3. EQUITY
These are all factors of
your asset strength.
Along with the income
statement, it can indicate
how effectively your
company’s assets are
being utilized to produce
return.
The balance sheet provides information on:
10. ASSET STRENGTHis a very good indicator of financial health. Because a company
can rely on its assets when things go wrong. Strong assets with
few liabilities means a company can survive financially at times
of trouble or crisis.
11. ASSET STRENGTHis a very good indicator of financial health. Because a company
can rely on its assets when things go wrong. Strong assets with
few liabilities means a company can survive financially at times
of trouble or crisis.
If your company has 3 million EGP to be repaid in 60 days
and 8 million EGP in cash or assets that can be turned into
cash within 60 days, the company is in good shape. If it is the
reverse....then things are not so good!!
12. ASSET STRENGTHis a very good indicator of financial health. Because a company
can rely on its assets when things go wrong. Strong assets with
few liabilities means a company can survive financially at times
of trouble or crisis.
If your company has 3 million EGP to be repaid in 60 days
and 8 million EGP in cash or assets that can be turned into
cash within 60 days, the company is in good shape. If it is the
reverse....then things are not so good!!
Banks, investors, and analysts review a company’s balance sheet
closely to determine the amount of risk involved in loaning money to,
investing in, or buying stock in the company. What they want to see
is enough asset strength to cover all of the possible events that a
business is exposed to every day such as a downturn in the market
or failed launch of a new product.
14. Assets = Liabilities + Equity
The Balance Sheet Formula
Cash & Cash Equivalents
+ Other Assets
= Total Assets
− Total Liabilities
= Total Shareholders’ Equity
The balance sheet shows a company’s assets and the sources of capital (cash) used to
acquire or fund those assets, The balance sheet “balances” because it shows that the money
to purchase the assets came from (balances with) the total of what was borrowed (liabilities)
plus what was earned or contributed from the owners’ pockets (equity).
16. 4
Reading a Balance Sheet in Minutes
Cash Position
Cash Position Change
Equity Ratio
Return on Assets (ROA)
If you only have a couple of minutes to look at a balance sheet,
quickly look for the following four:
17. Cash Position
A company’s cash position is the item listed as “Cash and Cash Equivalents”. This reflects how
much cash the company has on hand or in accessible accounts at a point in time.
You want to see a strong cash position on the balance sheet, this means that the company can
survive tough times. The worse the economy the more important the cash position becomes.
Reading a Balance Sheet in Minutes
18. Cash Position
A company’s cash position is the item listed as “Cash and Cash Equivalents”. This reflects how
much cash the company has on hand or in accessible accounts at a point in time.
You want to see a strong cash position on the balance sheet, this means that the company can
survive tough times. The worse the economy the more important the cash position becomes.
Cash Position Change
Look for how the company’s cash position has changed over the years. An increase is a
usually a good thing, unless the company is keeping too much cash, as that represents lost
opportunities and not enough investments in growth, also cash produces a very low return.
If the cash position has decreased, why has it decreased? Has the company used cash for big
investments? Or have revenue and profits declined, forcing the company to dig into its cash
reserves to sustain itself?
Reading a Balance Sheet in Minutes
19. Cash Position
A company’s cash position is the item listed as “Cash and Cash Equivalents”. This reflects how
much cash the company has on hand or in accessible accounts at a point in time.
You want to see a strong cash position on the balance sheet, this means that the company can
survive tough times. The worse the economy the more important the cash position becomes.
Cash Position Change
Look for how the company’s cash position has changed over the years. An increase is a
usually a good thing, unless the company is keeping too much cash, as that represents lost
opportunities and not enough investments in growth, also cash produces a very low return.
If the cash position has decreased, why has it decreased? Has the company used cash for big
investments? Or have revenue and profits declined, forcing the company to dig into its cash
reserves to sustain itself?
Equity Ratio
Divide the Total Equity by Total Assets and multiply by 100 to get the Equity Ratio.
A higher percentage means that the company relies on its owners’ equity to finance its assets.
A higher percentage also means the company has more equity to borrow against in case it
wishes to use loans to finance itself.
Reading a Balance Sheet in Minutes
20. Return on Assets (ROA)
ROA is a measure of profit generated on the company’s assets.
Divide the Net Income by Total Assets and multiply by 100 to calculate the ROA.
The higher the percentage the better, profits are the best kind of return!
Reading a Balance Sheet in Minutes
21. Let us take a look at a real balance sheet that is very relevant to you.
The following is an excerpt from Etisalat Group Annual Report for Year 2012.
Balance Sheet Example
24. Now that you have taken a quick
look at a balance sheet example, let
us break down the major
components of a balance sheet.
The following is an excerpt from
Etisalat Group Annual Report for Year
2013.
BalanceSheetBreakdown
25. non-current assets
These are assets that are fixed or long-term.
These assets are not intended to be turned into
cash in the next twelve months. A company
with more cash than it needs in the short term
will look for ways to invest it for higher return
in longer term assets.
26. current assets
These are assets that the company expects to
convert to cash within the next twelve months.
As we learned before, cash is the most liquid
asset. It includes funds in banks and other
financial accounts, as well as cash equivalents
such as interest in a money market fund.
As a general rule you want to see cash
increasing over time, unless the company
makes a strategic decision to use cash in
investment opportunities, paying dividends to
shareholders, or maybe paying bonuses to
employees.
28. current liabilities
These are the liabilities to be paid within twelve
months. An important question when reviewing
current liabilities is “are there enough current
assets to cover all current liabilities?”.
Although liabilities are necessary in most
companies to finance and grow operations, too
many liabilities can be troublesome. More
liabilities mean greater interest payments, and
interest payments impact the bottom line.
29. equity
Equity is used to calculate several ratios. One
of the most important is the Equity Ratio which
measures equity as a percentage of assets. A
high equity ratio suggests that a company has
a lot of equity to borrow against if it needs to
raise cash. Another is the debt-to-equity ratio,
which is total liabilities divided by total equity.
30. Points to remember
about the balance sheet
The balance sheet is a snapshot taken at the end of a month, quarter, or year.
It is used in comparing the financial status of the company between two
snapshots (two specific points in time).
31. Points to remember
about the balance sheet
The balance sheet is a snapshot taken at the end of a month, quarter, or year.
It is used in comparing the financial status of the company between two
snapshots (two specific points in time).
The balance sheet formula is Assets = Liabilities + Equity
32. Points to remember
about the balance sheet
The balance sheet is a snapshot taken at the end of a month, quarter, or year.
It is used in comparing the financial status of the company between two
snapshots (two specific points in time).
The balance sheet formula is Assets = Liabilities + Equity
The balance sheet primarily measure a company’s financial strength. It has a
particular focus on liquidity and ratios of debt to equity and assets.
33. Points to remember
about the balance sheet
The balance sheet is a snapshot taken at the end of a month, quarter, or year.
It is used in comparing the financial status of the company between two
snapshots (two specific points in time).
The balance sheet formula is Assets = Liabilities + Equity
The balance sheet primarily measure a company’s financial strength. It has a
particular focus on liquidity and ratios of debt to equity and assets.
The balance sheet must balance the amount of assets with the source of funds
to acquire them, that is the liabilities coming from creditors plus equity coming
from the owners.
34. Points to remember
about the balance sheet
The balance sheet is a snapshot taken at the end of a month, quarter, or year.
It is used in comparing the financial status of the company between two
snapshots (two specific points in time).
The balance sheet formula is Assets = Liabilities + Equity
The balance sheet primarily measure a company’s financial strength. It has a
particular focus on liquidity and ratios of debt to equity and assets.
The balance sheet must balance the amount of assets with the source of funds
to acquire them, that is the liabilities coming from creditors plus equity coming
from the owners.
Keys to look for in a balance sheet include: cash, current assets, total assets,
current liabilities, total liabilities, and equity.
35. Points to remember
about the balance sheet
The balance sheet is a snapshot taken at the end of a month, quarter, or year.
It is used in comparing the financial status of the company between two
snapshots (two specific points in time).
The balance sheet formula is Assets = Liabilities + Equity
The balance sheet primarily measure a company’s financial strength. It has a
particular focus on liquidity and ratios of debt to equity and assets.
The balance sheet must balance the amount of assets with the source of funds
to acquire them, that is the liabilities coming from creditors plus equity coming
from the owners.
Keys to look for in a balance sheet include: cash, current assets, total assets,
current liabilities, total liabilities, and equity.
Net income from the income statement, divided by total assets on the balance
sheet is what is called: Return on Assets. (ROA), which is a measure of
productivity.
36. Points to remember
about the balance sheet
The balance sheet is a snapshot taken at the end of a month, quarter, or year.
It is used in comparing the financial status of the company between two
snapshots (two specific points in time).
The balance sheet formula is Assets = Liabilities + Equity
The balance sheet primarily measure a company’s financial strength. It has a
particular focus on liquidity and ratios of debt to equity and assets.
The balance sheet must balance the amount of assets with the source of funds
to acquire them, that is the liabilities coming from creditors plus equity coming
from the owners.
Keys to look for in a balance sheet include: cash, current assets, total assets,
current liabilities, total liabilities, and equity.
Net income from the income statement, divided by total assets on the balance
sheet is what is called: Return on Assets. (ROA), which is a measure of
productivity.
Equity is equal to assets minus liabilities. Equity is generated through
shareholders investing in the company and by profit being retained by the
company.
37. Points to remember
about the balance sheet
The balance sheet is a snapshot taken at the end of a month, quarter, or year.
It is used in comparing the financial status of the company between two
snapshots (two specific points in time).
The balance sheet formula is Assets = Liabilities + Equity
The balance sheet primarily measure a company’s financial strength. It has a
particular focus on liquidity and ratios of debt to equity and assets.
The balance sheet must balance the amount of assets with the source of funds
to acquire them, that is the liabilities coming from creditors plus equity coming
from the owners.
Keys to look for in a balance sheet include: cash, current assets, total assets,
current liabilities, total liabilities, and equity.
Net income from the income statement, divided by total assets on the balance
sheet is what is called: Return on Assets. (ROA), which is a measure of
productivity.
Equity is equal to assets minus liabilities. Equity is generated through
shareholders investing in the company and by profit being retained by the
company.
Debt to equity ratio indicates how much debt is used to finance the growth of
the company over time.
38. to positively influence your company’s balance sheet:
What you can do....
Reduce or eliminate nonproducing assets
Acquire more effective assets
Make better use of, or conserve, cash
Negotiate better terms on credit or debt
Improve profitability using existing assets
