1 / 11

The balance sheet

The balance sheet. Fred Wenstøp. Traditional perspective. Sources and uses of funds. Assets Things owned by the business 100. Assets Where money is spent 100. Liabilities Amounts owed by the business 100. Liabilities Where money is obtained 100.

kipp
Download Presentation

The balance sheet

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. The balance sheet Fred Wenstøp

  2. Traditional perspective Sources and uses of funds Assets Things owned by the business 100 Assets Where money is spent 100 Liabilities Amounts owed by the business 100 Liabilities Where money is obtained 100 Two perspectives on the balance sheet Fred Wenstøp

  3. Structure of the balance sheet Assets Liabilities Fixed assets (FA) Owners’ funds (OF) Long-term loans (LTL) Current assets (CA) Current liabilities (CL) 100 100 Fred Wenstøp

  4. Current assets Assets Liabilities • Short term assets that can be converted to cash quickly • inventories • accounts receivable (trade debtors) • cash and cash equivalents • miscellaneous • pre-payments to suppliers Fixed assets (FA) Owners’ funds (OF) Long-term loans (LTL) Current assets (CA) Current liabilities (CL) 100 100 Fred Wenstøp

  5. Fixed assets Assets Liabilities • All long term assets • Intangibles • Goodwill, patents, licences • Net fixed assets • Land and buildings • plant and equipment • transport • computers • office equipment • Long term investments • Shares in associated companies Fixed assets (FA) Owners’ funds (OF) Long-term loans (LTL) Current assets (CA) Current liabilities (CL) 100 100 Fred Wenstøp

  6. Current liabilities Assets Liabilities • Short term liabilities to be paid within one year • Account payable (creditors) • Short term loans • Bank overdrafts • Interst bearing short term debts • Miscellaneous • Accrued payments • interests • current tax • dividends due Fixed assets (FA) Owners’ funds (OF) Long-term loans (LTL) Current assets (CA) Current liabilities (CL) 100 100 Fred Wenstøp

  7. Long-term loans Assets Liabilities • All long-term loans • more than one year Fixed assets (FA) Owners’ funds (OF) Long-term loans (LTL) Current assets (CA) Current liabilities (CL) 100 100 Fred Wenstøp

  8. Owners’ funds Assets Liabilities • All claims by the owners on the business • Issued common stock • Capital reserves • Surplus from sources other than normal trading that cannot be distributed • Revenue reserves • Surplus from trading. Can be distributed as dividends, but not often used for that Fixed assets (FA) Owners’ funds (OF) Long-term loans (LTL) Current assets (CA) Current liabilities (CL) 100 100 Fred Wenstøp

  9. Common terms Assets Liabilities • Total assets • TA = FA + CA • Capital employed • CE = FA + CA -CL • CE = OF + LTL • Net Worth • NW = FA + CA - CL - LTL • NW = OF • Working capital (liquidity) • WC = CA - CL Fixed assets (FA) Owners’ funds (OF) Long-term loans (LTL) Current assets (CA) Current liabilities (CL) 100 100 Fred Wenstøp

  10. Profit and loss account Sales 112 Operating costs 100 PBIT Profit before interest and tax 12 less interest 2 PBT Profit before tax 10 less tax 3 PAT Profit after tax 7 less dividends 2 RE Retained earnings 5 Fred Wenstøp

  11. Return on investment • ROTA = PBIT/TA • Return on total assets • Shows how well management uses all the assets in the business to generate an operating surplus • ROE = PAT/OF • Return on equity • Absolute return delivered to shareholders • High ROE leads to a high share price • ROCE = PBIT/(OF + LTL) • Return on capital employed Fred Wenstøp

More Related