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Balance Sheet - PowerPoint PPT Presentation


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Balance Sheet . Financial Photo of the business – financial position at one point in time Takes on date and shos us the value of what the business has (ITS ASSETS) what it owes (ITS LIABILITIES AND CAPITAL) Will tell us if the company is financially secure

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balance sheet
Balance Sheet
  • Financial Photo of the business – financial position at one point in time
  • Takes on date and shos us the value of what the business has (ITS ASSETS) what it owes (ITS LIABILITIES AND CAPITAL)
  • Will tell us if the company is financially secure
  • Look at liquidity and what decisions managers have taken
balance
Balance?
  • This account gets its name from the fact that everything the business has is equal in value to everything that it owes
1st section fixed assets
1st Section Fixed Assets
  • Business owns – land, property, fixtures, tools etc
  • Often not very liquid – long period of time to turn them into cash
  • Fall in value over time – depreciation
1st section current assets
1st Section Current Assets
  • Also things the business owns – but more liquid
  • Can be turned into cash more easily
  • Cash – Most liquid of all assets, Stock
  • Debtors – customers who have not yet paid
2nd section current liabilities
2nd Section Current Liabilities
  • Section of the balance sheet that most people will look at first
  • All the money the company owes to others that has to be paid in a year – if it has a lot of current liabilites it could face a liquidity crisis
  • Will it be able to pay all its short term debts?
  • Included:
      • Overdrafts – money owed to the bank
      • Trade Creditors – Money owed to suppliers
      • Taxation – owe the government money
2nd section long term liabilities
2nd Section Long term liabilities
  • Over a year – more ‘breathing space’
  • Paid eventually but pose less of worry in terms of liquidity
  • Business would prefer to have long term debt – Bank Loan, Mortgages and Debenture
3 rd section owners capital
3rd Section Owners Capital
  • Bit like liabilities – represents money that does not belong to the business
  • Captial = Assets – Liabilities
  • Once the business has paid off his debts anything left over belongs to the owner
net current assets working capital
Net current Assets – Working Capital
  • Net current assets = current assets – current liabilities
  • Handy way of looking at liquidity of the business
  • Business would be liquid and does not have liquidity troubles
current ratio
Current Ratio
  • A measure of liquidity
  • Current Ratio = Current Assets

Current Liabilities

  • Less than 1 = more current liabilities
  • Above 2 = More than enough current assts
  • Between 1-2 – justt enough to be getting on with
acid test ratio
Acid test Ratio
  • Does not include stock
  • = current assets – Stock

Current Liabilities

  • Company liquidiy problems might not be able to sell its stock easily
  • Same rules as before below 1 poor 2 above good
return on capital employed
Return on capital employed
  • Measure of profitability and general performance
  • Get the net profit from the P&L
  • And capital from Balance sheet
  • = net profit

Capital

  • Higher value better