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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

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Balance Sheet

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  1. 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

  2. Balance? • This account gets its name from the fact that everything the business has is equal in value to everything that it owes

  3. 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

  4. 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

  5. 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

  6. 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

  7. 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

  8. 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

  9. 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

  10. 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

  11. 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

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