Balance sheet

• Overall


  The statement of the financial position of a business at a particular time. It can be thought of as a set of scales which weights what you own (assets) on one side and what you owe (liabilities) on the other. Both sides must balance
• Ratios that are on there

  Liquidity → current ratio (current assets divided by current liabilities)

  Solvency (debt to equity)

  Efficiency → accounts receivable turnover ratio (sales divided by accounts receivable) divided by 365 for a daily
• Assets on there


  Current assets - cash and other types of assets that are reasonably expected to be converted into cash, sold or consumed in the next 12 months. These includes inventories, debtors and cash

  Non-current assets - are assets that are expected to be used for a number of years i.e. not held for resale, and except for land/building these assets have useful lives and are depreciated. This include property, fixture and fittings, equipment and vehicles

  Intangible assets - assets that usually don’t have a physical substance e.g. goodwill, copyrights, patents and brand names
• Liabilities on there


  Current liabilities - amounts a business owes that is expected to repaid within 12 months

  Non-current liabilities - amounts a business owes that are not expected to be repaid within 12 months
• Owner's Equity on there

  If the business in unincorporated, owner’s equity looks like: capital, net profit - drawings

  If the business is incorporated (company) owner’s equity looks like: shareholder’s equity + retained earnings
• What it can indicate


  The business has enough current assets to cover current liabilities (liquidity)

  The business has enough assets to cover its debts (gearing/solvency)

  The interest and money borrowed can be paid

  The assets of the business are being used to maximise profits

  The owners of the business are making a good return on their investment