Leading Business Online Module - Balance Sheet
-
Upload
karim-abobakr -
Category
Business
-
view
156 -
download
0
description
Transcript of Leading Business Online Module - Balance Sheet
![Page 1: Leading Business Online Module - Balance Sheet](https://reader035.fdocuments.in/reader035/viewer/2022070304/54be0f434a7959fb5b8b4627/html5/thumbnails/1.jpg)
LEADING BUSINESS !Online Module !
Etisalat Masters Development Program!
![Page 2: Leading Business Online Module - Balance Sheet](https://reader035.fdocuments.in/reader035/viewer/2022070304/54be0f434a7959fb5b8b4627/html5/thumbnails/2.jpg)
Deciphering the Balance Sheet
![Page 3: Leading Business Online Module - Balance Sheet](https://reader035.fdocuments.in/reader035/viewer/2022070304/54be0f434a7959fb5b8b4627/html5/thumbnails/3.jpg)
A balance sheet is a !
snapshot!
![Page 4: Leading Business Online Module - Balance Sheet](https://reader035.fdocuments.in/reader035/viewer/2022070304/54be0f434a7959fb5b8b4627/html5/thumbnails/4.jpg)
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.
![Page 5: Leading Business Online Module - Balance Sheet](https://reader035.fdocuments.in/reader035/viewer/2022070304/54be0f434a7959fb5b8b4627/html5/thumbnails/5.jpg)
The balance sheet provides information on:
![Page 6: Leading Business Online Module - Balance Sheet](https://reader035.fdocuments.in/reader035/viewer/2022070304/54be0f434a7959fb5b8b4627/html5/thumbnails/6.jpg)
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:
![Page 7: Leading Business Online Module - Balance Sheet](https://reader035.fdocuments.in/reader035/viewer/2022070304/54be0f434a7959fb5b8b4627/html5/thumbnails/7.jpg)
2. LIABILITIES The debts you OWE to
others, such as bank loans, accounts payable, and
mortgage loans.
The balance sheet provides information on:
![Page 8: Leading Business Online Module - Balance Sheet](https://reader035.fdocuments.in/reader035/viewer/2022070304/54be0f434a7959fb5b8b4627/html5/thumbnails/8.jpg)
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:
![Page 9: Leading Business Online Module - Balance Sheet](https://reader035.fdocuments.in/reader035/viewer/2022070304/54be0f434a7959fb5b8b4627/html5/thumbnails/9.jpg)
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:
![Page 10: Leading Business Online Module - Balance Sheet](https://reader035.fdocuments.in/reader035/viewer/2022070304/54be0f434a7959fb5b8b4627/html5/thumbnails/10.jpg)
ASSET STRENGTH is 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.
![Page 11: Leading Business Online Module - Balance Sheet](https://reader035.fdocuments.in/reader035/viewer/2022070304/54be0f434a7959fb5b8b4627/html5/thumbnails/11.jpg)
ASSET STRENGTH is 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!!
![Page 12: Leading Business Online Module - Balance Sheet](https://reader035.fdocuments.in/reader035/viewer/2022070304/54be0f434a7959fb5b8b4627/html5/thumbnails/12.jpg)
ASSET STRENGTH is 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.
![Page 13: Leading Business Online Module - Balance Sheet](https://reader035.fdocuments.in/reader035/viewer/2022070304/54be0f434a7959fb5b8b4627/html5/thumbnails/13.jpg)
Assets = Liabilities + Equity
The Balance Sheet Formula
![Page 14: Leading Business Online Module - Balance Sheet](https://reader035.fdocuments.in/reader035/viewer/2022070304/54be0f434a7959fb5b8b4627/html5/thumbnails/14.jpg)
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).
![Page 15: Leading Business Online Module - Balance Sheet](https://reader035.fdocuments.in/reader035/viewer/2022070304/54be0f434a7959fb5b8b4627/html5/thumbnails/15.jpg)
Reading a Balance Sheet in Minutes
![Page 16: Leading Business Online Module - Balance Sheet](https://reader035.fdocuments.in/reader035/viewer/2022070304/54be0f434a7959fb5b8b4627/html5/thumbnails/16.jpg)
4Reading 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:
![Page 17: Leading Business Online Module - Balance Sheet](https://reader035.fdocuments.in/reader035/viewer/2022070304/54be0f434a7959fb5b8b4627/html5/thumbnails/17.jpg)
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
![Page 18: Leading Business Online Module - Balance Sheet](https://reader035.fdocuments.in/reader035/viewer/2022070304/54be0f434a7959fb5b8b4627/html5/thumbnails/18.jpg)
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
![Page 19: Leading Business Online Module - Balance Sheet](https://reader035.fdocuments.in/reader035/viewer/2022070304/54be0f434a7959fb5b8b4627/html5/thumbnails/19.jpg)
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
![Page 20: Leading Business Online Module - Balance Sheet](https://reader035.fdocuments.in/reader035/viewer/2022070304/54be0f434a7959fb5b8b4627/html5/thumbnails/20.jpg)
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
![Page 21: Leading Business Online Module - Balance Sheet](https://reader035.fdocuments.in/reader035/viewer/2022070304/54be0f434a7959fb5b8b4627/html5/thumbnails/21.jpg)
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
![Page 22: Leading Business Online Module - Balance Sheet](https://reader035.fdocuments.in/reader035/viewer/2022070304/54be0f434a7959fb5b8b4627/html5/thumbnails/22.jpg)
![Page 23: Leading Business Online Module - Balance Sheet](https://reader035.fdocuments.in/reader035/viewer/2022070304/54be0f434a7959fb5b8b4627/html5/thumbnails/23.jpg)
Ba
lan
ce
She
et
Bre
akd
ow
n
![Page 24: Leading Business Online Module - Balance Sheet](https://reader035.fdocuments.in/reader035/viewer/2022070304/54be0f434a7959fb5b8b4627/html5/thumbnails/24.jpg)
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.
Ba
lan
ce
She
et
Bre
akd
ow
n
![Page 25: Leading Business Online Module - Balance Sheet](https://reader035.fdocuments.in/reader035/viewer/2022070304/54be0f434a7959fb5b8b4627/html5/thumbnails/25.jpg)
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.
![Page 26: Leading Business Online Module - Balance Sheet](https://reader035.fdocuments.in/reader035/viewer/2022070304/54be0f434a7959fb5b8b4627/html5/thumbnails/26.jpg)
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.
![Page 27: Leading Business Online Module - Balance Sheet](https://reader035.fdocuments.in/reader035/viewer/2022070304/54be0f434a7959fb5b8b4627/html5/thumbnails/27.jpg)
non-current liabilities Are the financial obligations that extend beyond twelve months, such as long term debt.
![Page 28: Leading Business Online Module - Balance Sheet](https://reader035.fdocuments.in/reader035/viewer/2022070304/54be0f434a7959fb5b8b4627/html5/thumbnails/28.jpg)
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.
![Page 29: Leading Business Online Module - Balance Sheet](https://reader035.fdocuments.in/reader035/viewer/2022070304/54be0f434a7959fb5b8b4627/html5/thumbnails/29.jpg)
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.
![Page 30: Leading Business Online Module - Balance Sheet](https://reader035.fdocuments.in/reader035/viewer/2022070304/54be0f434a7959fb5b8b4627/html5/thumbnails/30.jpg)
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).
![Page 31: Leading Business Online Module - Balance Sheet](https://reader035.fdocuments.in/reader035/viewer/2022070304/54be0f434a7959fb5b8b4627/html5/thumbnails/31.jpg)
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
![Page 32: Leading Business Online Module - Balance Sheet](https://reader035.fdocuments.in/reader035/viewer/2022070304/54be0f434a7959fb5b8b4627/html5/thumbnails/32.jpg)
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.
![Page 33: Leading Business Online Module - Balance Sheet](https://reader035.fdocuments.in/reader035/viewer/2022070304/54be0f434a7959fb5b8b4627/html5/thumbnails/33.jpg)
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.
![Page 34: Leading Business Online Module - Balance Sheet](https://reader035.fdocuments.in/reader035/viewer/2022070304/54be0f434a7959fb5b8b4627/html5/thumbnails/34.jpg)
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.
![Page 35: Leading Business Online Module - Balance Sheet](https://reader035.fdocuments.in/reader035/viewer/2022070304/54be0f434a7959fb5b8b4627/html5/thumbnails/35.jpg)
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.
![Page 36: Leading Business Online Module - Balance Sheet](https://reader035.fdocuments.in/reader035/viewer/2022070304/54be0f434a7959fb5b8b4627/html5/thumbnails/36.jpg)
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.
![Page 37: Leading Business Online Module - Balance Sheet](https://reader035.fdocuments.in/reader035/viewer/2022070304/54be0f434a7959fb5b8b4627/html5/thumbnails/37.jpg)
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.
![Page 38: Leading Business Online Module - Balance Sheet](https://reader035.fdocuments.in/reader035/viewer/2022070304/54be0f434a7959fb5b8b4627/html5/thumbnails/38.jpg)
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