Balance Shit

BALANCE SHEET

The balance sheet is one of the most important statements in a company's accounts. It shows what assets and liabilities a company has, and how the business is funded (by shareholders and by debt: the financial structure of the company). Book values are usually historical cost or fair value.

The balance sheet provides information that is useful when assessing the financial stability of a company. A number of financial ratios use numbers from the balance sheet including gearing, the current assets ratio and the quick assets ratio. However, ratios based on profits and cash flow are at least as important for assessing financial stability: the most important of these are interest cover and cash interest cover.

If any assets or (more commonly) liabilities that belong to the company in their economic effect do not appear on the balance sheet because accounting standards do not require it, they are referred to as off-balance sheet.

A balance sheet is usually presented in two sections that must reach to same total — this requirement that the two sections balance is the reason it is called a balance sheet.

The typical format of a balance sheet is:

• Assets

o Fixed assets/Non-current assets

 Property, plant & equipment

 Intangible assets (goodwill is often shown separately)

 Investments in subsidiaries (not in consolidated accounts), associates and joint ventures

o Current assets

 Stocks (see FIFO, LIFO, replacement cost profit and net realiseable value)

 Receivables

 Cash

• Total Assets

• Liabilities

o Current liabilities

 Short term debt

 Payables

 Tax

 Provisions

o Non-current liabilities

 Long term debt

 Pensions

 Provisions

• Total Liabilities

• Net assets (total assets less total liabilities)

And in the second section:

• Equity

o Share capital

o Share premium account

• Other reserves (such as the revaluation reserve)

• Retained earnings

• Total shareholder's equity

• Minority interests (only in consolidated accounts)

• Total equity

There are a number of common variations on this. The most common moves liabilities from the first section to the second. In this case the two “sides” of the balance sheet show the assets on the first side and the way they are funded on the second.

Another common variant is showing current liabilities as a deduction from current assets.

CASH FLOW

Cash flow is the movement of cash into or out of a business, project, or financial product. (Note that "cash" is used here in the broader sense of the term, where it includes bank deposits.) It is usually measured during a specified, finite period of time. Measurement of cash flow can be used for calculating other parameters that give information on a company's value and situation. Cash flow can e.g. be used for calculating parameters:

• to determine a project's rate of return or value. The time of cash flows into and out of projects are used as inputs in financial models such as internal rate of return and net present value.

• to determine problems with a business's liquidity. Being profitable does not necessarily mean being liquid. A company can fail because of a shortage of cash even while profitable.

• as an alternative measure of a business's profits when it is believed that accrual accounting concepts do not represent economic realities. For example, a company may be notionally profitable but generating little operational cash (as may be the case for a company that barters its products rather than selling for cash). In such

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