This document discusses how to prepare and analyze a balance sheet for a business. It explains the key components of a balance sheet including assets, liabilities, and net worth. It provides guidance on categorizing assets and liabilities for the balance sheet. It also introduces common financial ratios that can be calculated from the balance sheet, such as the current ratio and debt-to-worth ratio, to analyze the liquidity and leverage of the business. Worksheets are included to help the reader prepare their own balance sheet and analyze the financial health of their company.
Tetuan Valley Startup School V (Session 2)TetuanValley
Tetuan Valley is the first non-for-profit pre-accelerator program in Europe. Our goal is to promote local Entrepreneurship and regional development towards technology
Twice a year we host a 6 week startup school, with focus on training and working on the implementation of a business idea. We have a portfolio of more than 70 top-notch mentors, participating to give the students a unique and valuable experience. All graduates of the startup school get exclusive access to the Tetuan Valley Alumni Network.
For further info please check tetuanvalley.com
Most clients achieve over 3,000% ROI when investing our services
More than 70% clients overcome financial distresses and avoided undesired consequences
Over 90% clients stay with us more than 10 years after engaging us
Complete integrated multi-disciplines for all SMEs’ management, marketing, IT, & financial needs
1st Ever Comprehensive Framework To Grow Company Healthily & Holistically With +Ve Cashflows
Tetuan Valley Startup School V (Session 2)TetuanValley
Tetuan Valley is the first non-for-profit pre-accelerator program in Europe. Our goal is to promote local Entrepreneurship and regional development towards technology
Twice a year we host a 6 week startup school, with focus on training and working on the implementation of a business idea. We have a portfolio of more than 70 top-notch mentors, participating to give the students a unique and valuable experience. All graduates of the startup school get exclusive access to the Tetuan Valley Alumni Network.
For further info please check tetuanvalley.com
Most clients achieve over 3,000% ROI when investing our services
More than 70% clients overcome financial distresses and avoided undesired consequences
Over 90% clients stay with us more than 10 years after engaging us
Complete integrated multi-disciplines for all SMEs’ management, marketing, IT, & financial needs
1st Ever Comprehensive Framework To Grow Company Healthily & Holistically With +Ve Cashflows
10 Ways to Prepare a Cash Flow Statement Model That Actually Balances_Rephras...Invoicera
The cash flow statement shows how much cash a business brings in and spends over a period of time. It's important for businesses to understand their cash flow because it helps them see if they have enough money to cover their expenses.
CriteriaNo Submission0 pointsEmerging (Fthrough D RaCruzIbarra161
Criteria
No Submission
0 points
Emerging (F
through D Range)
(12-14)
14 points
Satisfactory (C
Range) (14-16)
16 points
Proficient (B Range)
(16-18)
18 points
Exemplary (A
Range) (18-20)
20 points
Criteri
Score
Analyzed
your
company’s
operations
and the
market in
which it
operates.
/ 20Did not identify
your company’s
operations and the
market in which it
operates.
Unsupported with
research.
Identified your
company’s
operations and the
market in which it
operates.
Lacked credible
research support.
Described your
company’s
operations and the
market in which it
operates.
Weakly supported
with research.
Analyzed your
company’s
operations and the
market in which it
operates.
Sufficiently
supported with
research.
Analysis of your
company’s
operations and the
market in which it
operates was
compelling and
showed well-
developed logical
progression.
Well supported by
research.
Criteria
No Submission
0 points
Emerging (F
through D Range)
(6-7)
7 points
Satisfactory (C
Range) (7-8)
8 points
Proficient (B Range)
(8-9)
9 points
Exemplary (A
Range) (9-10)
10 points
Criterio
Score
Evaluated
the EVA,
and free
cash flow
using the
firm’s
annual
report.
/ 10Did not identify the
EVA, and free cash
flow using the firm’s
annual report.
Unsupported with
research.
Identified the EVA,
and free cash flow
using the firm’s
annual report.
Lacked credible
research support.
Described the EVA,
and free cash flow
using the firm’s
annual report.
Weakly supported
with research.
Evaluated the EVA,
and free cash flow
using the firm’s
annual report.
Sufficiently
supported with
research.
Evaluation of the
EVA, and free cash
flow using the firm’s
annual report was
compelling and
showed well-
developed logical
progression.
Well supported by
research.
Criteria
No Submission
0 points
Emerging (F
through D Range)
(6-7)
7 points
Satisfactory (C
Range) (7-8)
8 points
Proficient (B Range)
(8-9)
9 points
Exemplary (A
Range) (9-10)
10 points
Criterion
Score
Analyzed
the
firm’s
ROA and
ROE.
/ 10Did not identify the
firm’s ROA and
ROE.
Unsupported with
research.
Identified the firm’s
ROA and ROE.
Lacked credible
research support.
Described the firm’s
ROA and ROE.
Weakly supported
with research.
Analyzed the firm’s
ROA and ROE.
Sufficiently
supported with
research.
Analysis of the
firm’s ROA and ROE
was compelling and
actionable.
Well supported by
research.
Criteria
No Submission
0 points
Emerging (F
through D Range)
(6-7)
7 points
Satisfactory (C
Range) (7-8)
8 points
Proficient (B Range)
(8-9)
9 points
Exemplary (A
Range) (9-10)
10 points
Cr
Sc
Wrote in a
clear, concise,
and organized
manner;
demonstrated
ethical
scholarship in
Submission contains
no discernible
overall intent in
author’s selection of
ideas.
Errors in basic
writing conventions
are sufficiently
Submission contains
random
presentation of
ideas, which
preve ...
10 Ways to Prepare a Cash Flow Statement Model That Actually Balances_Rephras...Invoicera
The cash flow statement shows how much cash a business brings in and spends over a period of time. It's important for businesses to understand their cash flow because it helps them see if they have enough money to cover their expenses.
CriteriaNo Submission0 pointsEmerging (Fthrough D RaCruzIbarra161
Criteria
No Submission
0 points
Emerging (F
through D Range)
(12-14)
14 points
Satisfactory (C
Range) (14-16)
16 points
Proficient (B Range)
(16-18)
18 points
Exemplary (A
Range) (18-20)
20 points
Criteri
Score
Analyzed
your
company’s
operations
and the
market in
which it
operates.
/ 20Did not identify
your company’s
operations and the
market in which it
operates.
Unsupported with
research.
Identified your
company’s
operations and the
market in which it
operates.
Lacked credible
research support.
Described your
company’s
operations and the
market in which it
operates.
Weakly supported
with research.
Analyzed your
company’s
operations and the
market in which it
operates.
Sufficiently
supported with
research.
Analysis of your
company’s
operations and the
market in which it
operates was
compelling and
showed well-
developed logical
progression.
Well supported by
research.
Criteria
No Submission
0 points
Emerging (F
through D Range)
(6-7)
7 points
Satisfactory (C
Range) (7-8)
8 points
Proficient (B Range)
(8-9)
9 points
Exemplary (A
Range) (9-10)
10 points
Criterio
Score
Evaluated
the EVA,
and free
cash flow
using the
firm’s
annual
report.
/ 10Did not identify the
EVA, and free cash
flow using the firm’s
annual report.
Unsupported with
research.
Identified the EVA,
and free cash flow
using the firm’s
annual report.
Lacked credible
research support.
Described the EVA,
and free cash flow
using the firm’s
annual report.
Weakly supported
with research.
Evaluated the EVA,
and free cash flow
using the firm’s
annual report.
Sufficiently
supported with
research.
Evaluation of the
EVA, and free cash
flow using the firm’s
annual report was
compelling and
showed well-
developed logical
progression.
Well supported by
research.
Criteria
No Submission
0 points
Emerging (F
through D Range)
(6-7)
7 points
Satisfactory (C
Range) (7-8)
8 points
Proficient (B Range)
(8-9)
9 points
Exemplary (A
Range) (9-10)
10 points
Criterion
Score
Analyzed
the
firm’s
ROA and
ROE.
/ 10Did not identify the
firm’s ROA and
ROE.
Unsupported with
research.
Identified the firm’s
ROA and ROE.
Lacked credible
research support.
Described the firm’s
ROA and ROE.
Weakly supported
with research.
Analyzed the firm’s
ROA and ROE.
Sufficiently
supported with
research.
Analysis of the
firm’s ROA and ROE
was compelling and
actionable.
Well supported by
research.
Criteria
No Submission
0 points
Emerging (F
through D Range)
(6-7)
7 points
Satisfactory (C
Range) (7-8)
8 points
Proficient (B Range)
(8-9)
9 points
Exemplary (A
Range) (9-10)
10 points
Cr
Sc
Wrote in a
clear, concise,
and organized
manner;
demonstrated
ethical
scholarship in
Submission contains
no discernible
overall intent in
author’s selection of
ideas.
Errors in basic
writing conventions
are sufficiently
Submission contains
random
presentation of
ideas, which
preve ...
A Comprehensive Guide on Preparing Financial Statements for Your BusinessAlan Boal
The meticulous preparation of financial statements stands as an indispensable task in the proficient management of any business, irrespective of its size or industry. These essential documents serve as a comprehensive and holistic overview of your company's financial well-being, becoming an instrumental tool in guiding you towards informed, strategic decision-making and future planning. This article serves as a detailed, step-by-step guide on how you can prepare these crucial documents effectively and efficiently:
The Good News, newsletter for June 2024 is hereNoHo FUMC
Our monthly newsletter is available to read online. We hope you will join us each Sunday in person for our worship service. Make sure to subscribe and follow us on YouTube and social media.
Exploring the Mindfulness Understanding Its Benefits.pptxMartaLoveguard
Slide 1: Title: Exploring the Mindfulness: Understanding Its Benefits
Slide 2: Introduction to Mindfulness
Mindfulness, defined as the conscious, non-judgmental observation of the present moment, has deep roots in Buddhist meditation practice but has gained significant popularity in the Western world in recent years. In today's society, filled with distractions and constant stimuli, mindfulness offers a valuable tool for regaining inner peace and reconnecting with our true selves. By cultivating mindfulness, we can develop a heightened awareness of our thoughts, feelings, and surroundings, leading to a greater sense of clarity and presence in our daily lives.
Slide 3: Benefits of Mindfulness for Mental Well-being
Practicing mindfulness can help reduce stress and anxiety levels, improving overall quality of life.
Mindfulness increases awareness of our emotions and teaches us to manage them better, leading to improved mood.
Regular mindfulness practice can improve our ability to concentrate and focus our attention on the present moment.
Slide 4: Benefits of Mindfulness for Physical Health
Research has shown that practicing mindfulness can contribute to lowering blood pressure, which is beneficial for heart health.
Regular meditation and mindfulness practice can strengthen the immune system, aiding the body in fighting infections.
Mindfulness may help reduce the risk of chronic diseases such as type 2 diabetes and obesity by reducing stress and improving overall lifestyle habits.
Slide 5: Impact of Mindfulness on Relationships
Mindfulness can help us better understand others and improve communication, leading to healthier relationships.
By focusing on the present moment and being fully attentive, mindfulness helps build stronger and more authentic connections with others.
Mindfulness teaches us how to be present for others in difficult times, leading to increased compassion and understanding.
Slide 6: Mindfulness Techniques and Practices
Focusing on the breath and mindful breathing can be a simple way to enter a state of mindfulness.
Body scan meditation involves focusing on different parts of the body, paying attention to any sensations and feelings.
Practicing mindful walking and eating involves consciously focusing on each step or bite, with full attention to sensory experiences.
Slide 7: Incorporating Mindfulness into Daily Life
You can practice mindfulness in everyday activities such as washing dishes or taking a walk in the park.
Adding mindfulness practice to daily routines can help increase awareness and presence.
Mindfulness helps us become more aware of our needs and better manage our time, leading to balance and harmony in life.
Slide 8: Summary: Embracing Mindfulness for Full Living
Mindfulness can bring numerous benefits for physical and mental health.
Regular mindfulness practice can help achieve a fuller and more satisfying life.
Mindfulness has the power to change our perspective and way of perceiving the world, leading to deeper se
In Jude 17-23 Jude shifts from piling up examples of false teachers from the Old Testament to a series of practical exhortations that flow from apostolic instruction. He preserves for us what may well have been part of the apostolic catechism for the first generation of Christ-followers. In these instructions Jude exhorts the believer to deal with 3 different groups of people: scoffers who are "devoid of the Spirit", believers who have come under the influence of scoffers and believers who are so entrenched in false teaching that they need rescue and pose some real spiritual risk for the rescuer. In all of this Jude emphasizes Jesus' call to rescue straying sheep, leaving the 99 safely behind and pursuing the 1.
HANUMAN STORIES: TIMELESS TEACHINGS FOR TODAY’S WORLDLearnyoga
Hanuman Stories: Timeless Teachings for Today’s World" delves into the inspiring tales of Hanuman, highlighting lessons of devotion, strength, and selfless service that resonate in modern life. These stories illustrate how Hanuman's unwavering faith and courage can guide us through challenges and foster resilience. Through these timeless narratives, readers can find profound wisdom to apply in their daily lives.
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SBs – Sunday Bible School
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MAGAZINE: THE CAREER THAT IS PROPOSED TO US: The Path of Salvation, Holiness and Perseverance to Reach Heaven
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Presentation: Missionary Celso Napoleon
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We will learn what Anime is and see what a Christian should consider before watching anime movies? We will also learn a little bit of Shintoism religion and hentai (the craze of internet pornography today).
The Chakra System in our body - A Portal to Interdimensional Consciousness.pptxBharat Technology
each chakra is studied in greater detail, several steps have been included to
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The PBHP DYC ~ Reflections on The Dhamma (English).pptxOH TEIK BIN
A PowerPoint Presentation based on the Dhamma Reflections for the PBHP DYC for the years 1993 – 2012. To motivate and inspire DYC members to keep on practicing the Dhamma and to do the meritorious deed of Dhammaduta work.
The texts are in English.
For the Video with audio narration, comments and texts in English, please check out the Link:
https://www.youtube.com/watch?v=zF2g_43NEa0
The Book of Joshua is the sixth book in the Hebrew Bible and the Old Testament, and is the first book of the Deuteronomistic history, the story of Israel from the conquest of Canaan to the Babylonian exile.
1. business builder 2
how to prepare and analyze a balance sheet
zions business resource center
2. zions business resource center 2
how to prepare and analyze a balance sheet
Examine the concepts of assets, liabilities, and net worth in a way that will help
you relate them to your business. Learn how to create a balance sheet for your
company and how to use it to analyze your business’ liquidity and leverage.
What You Should Know Before Getting Started 3
• The Purpose of Financial Statements 3
• Why Create a Balance Sheet? 4
How to Prepare a Balance Sheet 4
• Assets 5
• Liabilities 8
• Net Worth 9
• Balance Sheet Worksheet 9
How to Analyze a Balance Sheet 10
• Current Ratio 10
• Quick Ratio 11
• Working Capital 11
• Debt/Worth Ratio 11
Conclusion 12
Checklist 12
Glossary 13
Resources 14
Notes 15
3. how to prepare and analyze a balance sheet 3
what to expect
This Business Builder will introduce you to accounting terminology and examine the concepts
of assets, liabilities and net worth in a way that will help you relate them to your business. It
will guide you through a step-by-step process to create a balance sheet for your company and
explain how to use a balance sheet to analyze your business’ liquidity and leverage.
what you should know before getting started
The Purpose of Financial Statements
The purpose of financial statements is to communicate. Financial statements tell you and others
the state of your business. The three most commonly prepared financial statements for a small
business are a balance sheet, an income statement, and a cash flow statement.
A balance sheet (also known as a statement of financial position) is a formal document that
follows a standard accounting format showing
the same categories of assets and liabilities
To help you get a grip on accounting terminology,
regardless of the size or nature of the
terms are defined as they are introduced and
business. The balance sheet you prepare will
a glossary is included for reference.
be in the same format as IBM’s or General
Motors’. Accounting is considered the language
of business because its concepts are time-tested and standardized. Even if you do not utilize the
services of a certified public accountant, you or your bookkeeper can adopt certain generally
accepted accounting principles (GAAP) to develop financial statements.
The strength of GAAP is the reliability of company data from one accounting period to another and
the ability to compare the financial statements of different companies. The standardization introduced by
commonly defined terms is responsible for this reliability. To help you get a grip on accounting terminology,
terms are defined as they are introduced and a glossary is included for reference.
Garbage-in, garbage-out. The integrity of any financial statement is directly related to the information
that goes into its construction. You may want to consider revamping your record-keeping, if necessary,
before you begin compiling financial statements.
4. zions business resource center 4
This Business Builder will explain what data is necessary for accurate financial statements, but
answering the following questions might be a good place to start:
• Are the financial records for all (or most) of the company’s assets (equipment, inventory,
furniture) and liabilities (personal loans, bank loans) in one place?
• Is there a record of the amounts and sources of cash expended to begin the business and
acquire inventory?
• Do you know what is currently owed to the bank, creditors, or others?
• Do you know how much of what is owed is due in the next 12 months?
• Can you estimate what percentage of accounts receivable may not be received?
Why Create a Balance Sheet?
A balance sheet provides a snapshot of a business’ health at a point in time. It is a summary of
what the business owns (assets) and owes (liabilities). Balance sheets are usually prepared at the
close of an accounting period such as month-end, quarter-end, or year-end. New business owners
should not wait until the end of 12 months or the end of an operating cycle to complete a balance
sheet. Savvy business owners see a balance sheet as an important decision-making tool.
Over time, a comparison of balance sheets can give a good picture of the financial health of a business.
In conjunction with other financial statements, it forms the basis for more sophisticated analysis of the
business. The balance sheet is also a tool to evaluate a company’s flexibility and liquidity.
how to prepare a balance sheet
A balance sheet is a statement of a firm’s assets, liabilities and net worth. The key to
understanding a balance sheet is the simple formula:
Assets = Liabilities + Net Worth
All balance sheets follow the same format: If it is in two columns, assets are on the left, liabilities are
on the right, and net worth is beneath liabilities. If it is in one column, assets are listed first, followed by
liabilities and net worth.
Here is a sample balance sheet for the Doodads Company.
5. how to prepare and analyze a balance sheet 5
Doodads Co. Balance Sheet as of Dec 31, 20XX
Assets $$
Current Assets
Cash On Hand $ 300
Cash in Bank $ 2,200
Accounts Receivable $ 1,600
Merchandise Inventory $ 5,500
Prepaid Expenses
Rent $ 1,200
Total Current Assets $10,800
Fixed Assets
Equipment and Fixtures
(less Depreciation) $ 1,200
Total Assets $12,000
Liabilities $$
Current Liabilities
Accounts Payable $ 1,100
Notes Payable, Bank $ 2,200
Accrued Payroll Expenses $ 500
Total Current Liabilities $ 3,800
Long-Term Liabilities
Notes Payable, 1998 $ 5,500
Total Liabilities $ 9,300
Net Worth* $ 2,700
Total Liabilities and Net Worth $12,000
*Assets = Liabilities + Net Worth
Assets
In this section, each type of asset is explained. A worksheet is provided for your use in assembling
a balance sheet for your business on Page 9.
All balance sheets show the same categories of assets: current, long-term (fixed) assets, and other
assets. Assets are arranged in order of how quickly they can be turned into cash. Turning assets into cash
is called liquidity.
6. zions business resource center 6
Current assets include cash, stocks and bonds, accounts receivable, inventory, prepaid expenses
and anything else that can be converted into cash
within one year or during the normal course of Assets are arranged in order of how quickly
business. These are the categories you will use they can be turned into cash.
to group your current assets. This Business
Builder focuses on the current assets most commonly used by small businesses: cash, accounts
receivable, inventory and prepaid expenses.
Cash is relatively easy to figure out. It includes cash on hand, in the bank and in petty cash.
Accounts receivable is what you are owed by customers. The easy availability of this information is
important. Fast action on slow paying accounts may be the difference between success and failure for
a small business. To make this number more realistic, you should deduct an amount from accounts
receivable as an allowance for bad debts.
Inventory may be your largest current asset. On a balance sheet, the value of inventory is the cost to
replace it. If your inventory were destroyed, lost or damaged, how much would it cost you to replace or
reproduce it? Inventory includes goods ready for sale, as well as raw material and partially completed
products that will be for sale when they are completed.
Prepaid expenses are listed as a current asset because they represent an item or service that has
been paid for but has not been used or consumed. An example of a prepaid expense is the last month of
rent of a lease that you may have prepaid as a security deposit. It will be carried as an asset until it is used.
Prepaid insurance premiums are another example of a prepaid expense. Sometimes, prepaid expenses
are also referred to as unexpired expenses.
On a balance sheet, current assets are totaled and this total is shown as the line item:
Total Current Assets.
Step 1: Complete the Current Asset Section of the worksheet.
Fixed Assets are also known as long-term assets. Fixed assets are the assets that produce
revenues. They are distinguished from current assets by their longevity. They are not for resale. Many
small businesses may not own a large amount of fixed assets. This is because most small businesses
are started with a minimum of capital. Of course, fixed assets will vary considerably and depend on the
business type (such as service or manufacturing), size and market.
Fixed assets include furniture and fixtures, motor vehicles, buildings, land, building improvements
(or leasehold improvements, if you rent), production machinery, equipment and any other items with an
expected business life that can be measured in years.
All fixed assets (except land) are shown on the balance sheet at original (or historic) cost less any
depreciation. Subtracting depreciation is a conservative accounting practice to reduce the possibility of
overvaluation. Depreciation subtracts a specified amount from the original purchase price for the wear
and tear on the asset. It is important to remember that original cost may be more than the asset’s invoice
price. It can include shipping, installation, and any associated expenses necessary for readying the asset
for service.
7. how to prepare and analyze a balance sheet 7
This Business Builder assumes that you are familiar with depreciation, have already selected a
depreciation method and are comfortable with its application. If you are not familiar with depreciation, you
can still prepare a balance sheet. It will provide you with similar benefits, but it will not be in conformance
with GAAP.
This section concentrates on the categories of fixed assets common to most small businesses:
furniture and fixtures, motor vehicles, and machinery and equipment.
• Furniture and fixtures is a line item that includes office furniture, display shelves, counters,
work tables, storage bins and other similar items. On the balance sheet, these items are listed
at cost (plus related expenses) minus depreciation.
• Motor vehicles is a line item to list the original value (less depreciation) of any motor vehicle,
such as a delivery truck, that is owned by your business.
• Machinery and equipment are vital to many businesses. If you are a manufacturing firm, this
could be your largest fixed asset. Like the other fixed assets on the balance sheet, machinery
and equipment will be valued at the original cost minus depreciation.
• Other assets is a fourth category of fixed assets. Other assets are generally intangible assets
such as patents, royalty arrangements and copyrights.
Step 2: Complete the Fixed Assets Section and the Other Assets Section of the worksheet and
compute the total assets of your business.
Liabilities
In this section, two types of liabilities will be explained. You will continue to use the worksheet at
the end of this section. Liabilities are claims of creditors against the assets of the business. They
are debts owed by the business.
There are two types of liabilities: current liabilities and long-term liabilities. Liabilities are arranged
on the balance sheet in order of how soon they must be repaid. For example, accounts payable will appear
first as they are generally paid within 30 days. Notes payable are generally due within 90 days and are the
second liability to appear on the balance sheet.
Current liabilities are accounts payable, notes payable to banks (or others), accrued expenses (such
as wages and salaries), taxes payable, the current due
Liabilities are arranged on the balance sheet within one year portion of long-term debt and any other
in order of how soon they must be repaid. obligations to creditors due within one year from the date
of the balance sheet. The current liabilities of most small
businesses include accounts payable, notes payable to banks and accrued payroll taxes.
• Accounts payable is the amount you may owe any suppliers or other creditors for services or
goods that you have received but not yet paid for.
• Notes payable refers to any money due on a loan during the next 12 months.
• Accrued payroll taxes would be any compensation to employees who have worked, but have not
been paid, at the time the balance sheet is created.
8. zions business resource center 8
Long-term liabilities are any debts that must be repaid by your business more than one year from the
date of the balance sheet. This may include startup financing from relatives, banks, finance companies
or others.
Step 3: Complete the Liabilities Section of the worksheet. Compute Total Liabilities.
Net Worth
The formula that defines the balance sheet is:
Assets = Liabilities + Net Worth
The formula can be transposed to yield a definition of net worth:
Net Worth = Assets - Liabilities
Net worth is what is left over after liabilities have been subtracted from the assets of the business.
In a sole proprietorship, it is also known as owner’s equity. This equity is the investment by the owner plus
any profits or minus any losses that have accumulated in the business.
Step 4: Complete the Net Worth Section of the worksheet. When this is done, you should have a
completed balance sheet for your business.
Balance Sheet WORKSHEET
Enter your Company Name here:_____________________________________
Assets Beginning:________ Projected:________
Current Assets
Cash in bank $ $
Accounts receivable $ $
Inventory $ $
Prepaid expenses $ $
Other current assets $ $
Total Current Assets $ $
Fixed Assets
Machinery & equipment $ $
Furniture & fixtures $ $
Leasehold improvements $ $
Land & buildings $ $
Other fixed assets $ $
(LESS accumulated depreciation
on all fixed assets)
Total Fixed Assets $ $
(net of depreciation)
9. how to prepare and analyze a balance sheet 9
Other Assets
Intangibles $ $
Deposits $ $
Goodwill $ $
Other $ $
Total Other Assets $ $
TOTAL Assets $ $
Liabilities and Equity
Current Liabilities
Accounts payable $ $
Interest payable $ $
Taxes payable $ $
Notes payable, short-term $ $
(due within 12 months)
Current part, long-term debt $ $
Other current liabilities $ $
Total Current Liabilities $ $
Long-term Debt
Bank loans payable $ $
Notes payable to stockholders $ $
LESS: Short-term portion $ $
Other long-term debt $ $
Total Long-term Debt $ $
TOTAL Liabilities $ $
Net Worth $ $
Total Liabilities $ $
& net worth
In the next section, four simple formulas will be introduced to enhance the information contained on
the balance sheet.
The information in the preceding section will help you develop a balance sheet of your own.
10. zions business resource center 10
how to analyze a balance sheet
Now that you have created a balance sheet for your business, there are some easy
calculations that you can perform that will give you a better understanding of your
company. Using data from your balance sheet, you can calculate liquidity and leverage ratios.
These financial ratios turn the raw financial data from the balance sheet into information that will
help you manage your business and make knowledgeable decisions. A ratio shows the relationship
between two numbers. It is defined as the relative size of two quantities expressed as the quotient of
one divided by the other. Financial ratio analysis is important because it is one method loan officers use
to evaluate the credit worthiness of potential borrowers. Ratio analysis is a tool to uncover trends in a
business as well as allow the comparison between one business and another.
In the following section, four financial ratios that can be computed from a balance sheet are examined:
• Current Ratio
• Quick Ratio
• Working Capital
• Debt/Worth Ratio
Current Ratio
The current ratio (or liquidity ratio) is a measure of financial strength. The number of times
current assets exceed current liabilities is a valuable expression of a business’ solvency. Here
is the formula to compute the current ratio:
Current Ratio = Total Current Assets
Total Current Liabilities
The current ratio answers the question, “Does my business have enough current assets to meet the
payment schedule of current liabilities with a margin of safety?” A rule-of-thumb puts a strong current
ratio at two. Of course, the adequacy of a current ratio will depend on the nature of the small business
and the character of the current assets and current liabilities. While there is usually little doubt about
debts that are due, there can be considerable doubt about the quality of accounts receivable or the cash
value of inventory.
A current ratio can be improved by either increasing current assets or decreasing current liabilities.
This can take the form of the following:
• Paying down debt.
• Acquiring a loan (payable in more than one year’s time).
• Selling a fixed asset.
• Putting profits back into the business.
11. how to prepare and analyze a balance sheet 11
A high current ratio may mean that cash is not being utilized in an optimal way. That is, the cash
might better be invested in equipment.
Quick Ratio
The quick ratio is also called the “acid test” ratio. It is a measure of a company’s liquidity. The
quick ratio looks only at a company’s most liquid assets and divides them by current liabilities.
Here is the formula for the quick ratio:
Quick Ratio = (Current Assets - Inventory)
Current Liabilities
The assets considered to be “quick” assets are cash, stocks and bonds, and accounts receivable (all
of the current assets on the balance sheet, except inventory). The quick ratio is an acid test of whether or
not a business can meet its obligations if adverse conditions occur. Generally, quick ratios between .50
and 1 are considered satisfactory as long as the collection of receivables is not expected to slow.
Working Capital
Working capital should always be a positive number. It is used by lenders to evaluate a company’s
ability to weather hard times. Often, loan agreements specify a level of working capital that the
borrower must maintain.
Working Capital = Total Current Assets - Total Current Liabilities
The current ratio, quick ratio and working capital are all measures of a company’s liquidity. In general,
the higher these ratios are, the better for the business and the higher degree of liquidity.
Debt/Worth Ratio
The debt/worth ratio (or leverage ratio) is an indicator of a business’ solvency. It is a measure of
how dependent a company is on debt financing (or borrowings) as compared to owner’s equity. It
shows how much of a business is owned and how much is owed.
The debt/worth ratio is computed as follows:
Debt/Worth Ratio = Total Liabilities
Net Worth
Step 5: Compute the current ratio, quick ratio, working capital, and debt/worth ratio for your
company.
12. zions business resource center 12
conclusion
Since balance sheets present the health of a company as of one point in time, valuable information
will be lost if managers do not take the opportunity to compare the progress and trend of a business
by regularly evaluating and comparing balance sheets of past time periods. Information is power. The
information that can be gleaned from the preparation and analysis of a balance sheet is one financial
management tool that may mean the difference between success and failure.
checklist
Assets
____ Have you included all current assets?
____ Did you adjust accounts receivable for bad debts?
____ Is inventory valued at replacement cost?
____ Did you include all appropriate prepaid expenses?
____ Did you include any installation or delivery costs for fixed assets?
Liabilities and Net Worth
____ Have all liabilities, both current and long term, been included?
____ Did you include all startup expenses payable in more than one year in long-term liabilities?
____ Do assets minus liabilities equal net worth?
Financial Ratio Analysis
____ Did you compute a current ratio, quick ratio, working capital and debt/worth ratio for
your business?
____ Is your current ratio greater than or equal to two? If not, do you know what adjustments
might be made?
13. how to prepare and analyze a balance sheet 13
glossary
Allowance for Bad Debts - Amount of estimated debt to the business that is not expected to be repaid
and is subtracted from accounts receivable on the balance sheet. Also known as an allowance for
doubtful accounts.
Assets - Anything that a business owns that has monetary value.
Accounts Payable - Debts of the business, often to suppliers, and generally payable within 30 days.
Accounts Receivable - An amount owed to the business, usually by one of its customers, as result of
the extension of credit.
Accrued Payroll Taxes - Taxes payable for employee services received, but for which payment has not
yet been made.
Balance Sheet - A financial statement showing the assets, liabilities, and net worth of a business as of
a specific date.
Current Assets - Cash and other assets readily converted into cash. Includes accounts receivable,
inventory, and prepaid expenses.
Current Liabilities - The debts of a company which are due and payable within the next 12 months.
Current Ratio - Current assets divided by current liabilities.
Debt/Worth Ratio - Total Liabilities divided by Net Worth.
Depreciation - An accounting convention to take into account the physical deterioration of an asset. It is
a systematic method to allocate the historical cost of the asset over its useful life.
Fixed Assets - Also called long-term assets with a relatively long life that are used in the production of
goods and services, rather than being for resale.
GAAP - Abbreviation of Generally Accepted Accounting Principles. Conventions, rules, and procedures
that define accepted accounting practice.
Inventory - Goods held for sale, raw material and partially finished products which will be sold when
they are finished.
Liabilities - Debts of the business.
Liquidity - The ability to produce cash from assets in a short period of time.
Long-Term Liabilities - Debts of a company due after a period of 12 months or longer.
Net Worth - The business owner’s equity in a company as represented by the difference between assets
and liabilities.