3. INTRODUCTION
*A balance sheet is a financial statement
that provides a snapshot of a company's
financial health at a specific point in
time. It's a critical tool for assessing a
company's assets, liabilities, and equity,
helping stakeholders understand its
overall financial position. In this
presentation, we will explore the
structure, preparation, and analysis of
balance sheets, equipping you with the
knowledge to make informed
financial decisions.*
4. PREPARING A
BALANCE SHEET
A balance sheet is a financial statement
that provides a snapshot of a
company's financial position at a
specific point in time, usually the end of
a fiscal period, such as a quarter or
year. It is one of the fundamental
financial statements used in accounting
and finance
The balance sheet follows the
fundamental accounting equation:
"Assets = Liabilities + Equity." It
provides a clear overview of a
company's financial health, helping
5. ASSETS
*Assets are the valuable resources owned by a
company. They can be divided into two main
categories:
• *Current Assets:* These are short-term
assets expected to be converted into cash
or used within a year. Examples include
cash, accounts receivable, and inventory
• *Non-Current Assets:* Also known as
long-term or fixed assets, these are
resources held for extended periods.
Examples include property, plant,
equipment, and intangible assets
*Assets are crucial for a company's operations
and are listed on the balance sheet to provide
insights into its financial health and value.
6. LIABILITIES
“
Liabilities represent a company's obligations to
external parties. They come in two main categories:
1. *Current Liabilities:* These are short-term obligations
expected to be settled within a year. Examples include
accounts payable, short-term loans, and accrued
expenses.
2. *Non-Current Liabilities:* Also called long-term
liabilities, these represent obligations to be settled over
an extended period, typically beyond a year. Examples
include long-term debt and deferred tax liabilities.
Liabilities are crucial for understanding a company's
financial responsibilities and its ability to meet them.
They are a key component of the balance sheet, which
reflects a company's financial position.
”
7. EQUITY
Equity, also known as owner's equity or shareholder's equity, represents the owner's residual interest in a
company's assets after deducting liabilities. It's a crucial component of a balance sheet. Equity includes:
• *Common Stock:* The value of shares issued to investors in exchange for ownership in the
company.
• *Retained Earnings:* Accumulated profits or losses from the company's operations over time.
Equity reflects the company's net worth and the portion of assets attributable to its owners.
It's a key indicator of the financial health and value of the business.
8. ANALYZING A BALANCE
SHEET
Analyzing a balance sheet involves evaluating a company's
financial health. It begins with distinguishing between current
and non-current assets and liabilities to gauge short-term
liquidity. Working capital, derived by subtracting current
liabilities from current assets, offers insights into a firm's
ability to meet short-term obligations. Examining the debt-to-
equity ratio reveals the level of financial risk. Reviewing the
equity section for retained earnings highlights profitability.
Additionally, common-size analysis expresses items as
percentages of total assets, helping assess their significance.
Liquidity ratios, like the current ratio, indicate short-term
financial strength, while solvency ratios, such as debt-to-
equity, assess long-term stability. Trend analysis and
consideration of financial disclosures provide further context
for making informed decisions.
9. COMPARATIVE
ANALYSIS
Comparative analysis involves evaluating financial data from
multiple periods to identify trends, changes, and performance
differences. It is commonly used for assessing a company's
financial health and operational efficiency. Key components
of comparative analysis include:
1. *Historical Comparison:* Comparing financial statements
from different years (e.g., year-over-year or multi-year)
to identify trends and changes. This helps assess
whether the company is growing or facing financial
challenges
2. *Peer Comparison:* Benchmarking a company's
financial performance against industry peers or
competitors. This can reveal how the company stacks up
in terms of profitability, efficiency, and financial stability.
3. *Ratios and Metrics:* Using financial ratios (e.g., current
ratio, return on equity) to quantitatively assess
performance and compare it to past performance or
industry averages.
4. *Common-Size Analysis:* Expressing financial statement
items as percentages of total assets or revenue, making
it easier to compare across time periods or with other
companies.
Comparative analysis provides valuable insights into a
company's financial trajectory and competitiveness in the
