Analysing balance sheets

Using financial data to measure and assess perform

Many of the performance indicators used by businesses are financial in nature.
One way in which businesses gather such data is to prepare financial statements and account
Financial statements such as balance sheets and profit and loss accounts or income statements are important examples.
Accounting is the process of identifying, measuring and communicating information to permit informed judgments and decisions by users of the information.

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ASSETS are the resources that a business owns and uses. Assets are usually divided into current assets and fixed assets.
Current assets are used up in production, such as stocks of raw material
Fixed assets, such as machinery, are used again and again over a period of time.
LIABILITIES are the debts of the business.
Liabilities are a source of funds for a business. Short-term such as overdraft, or long-term, such as mortgage or a long-term bank loan.
CAPITAL is the money introduced by the owners of the business.

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One advantage of presenting the balance sheet in this format is that it is easy to see the amount of working capital that a business has.
Important because the working capital shows whether a business is able to pay its day-to-day bills.
The balance sheet is a record of the company's assets, liabilities and capital.
Non-current assests replaces the term fixed assets

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Accounting - The process of identifying, measuring and communicating information to permit informed judgments and decisions by users of the information.
Assets - Resources used or owned by the business in production.
Balance sheet - A summary at a point in time of business assets, liabilities and capital.
Capital - A source of funds provided by the owners of the business used to buy assets.
Current assets - Assets likely to be changed into cash within a year
Current liabilities - Debts that have to be repaid within a year.
Drawings - Money withdrawn by a sole trader from the business for personal use.
Fixed assets - Assets with a lifespan of more than one year
Liabilities - The debts of the business which provide a source of funds
Long-term liabilities - Debts that are payable after 12 months.

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Net assets - The value of total assets minus current liabilities minus long-term liabilities. The value is equal to capital and reserves on the balance sheet.
Net current assets - Current assets minus current liabilities.
Non current assets - The long-term assets of a plc which are not expected to be sold within 12 months.
Non current liabilities - The long-term liabilities of a plc - any amount of money owed for more than 12 months

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