Balance sheet presents a company’s financial position at the end of a specified date. It is used for financial analysis of company performance. It consists of three parts
Company carry out their business operation using assets. These assets are either funded by capital of the owners of the company (Equity) or by borrowed capital from external parties (Liabilities). It can be summed in accounting equation
Shareholder’s Equity + Liabilities = Assets
Balance Sheet Example
Below is an example of TCS balance sheet. It starts with assets, followed by stockholders equity and liabilities.
Above balance sheet has four columns.
- Column 1 – List financial items
- Column 2 – Notes on accounts reference. It explains the constituents of the financial items in detail.
- Column 3 – Numbers for just concluded year
- Column 4 – Numbers for year prior to just concluded year
A balance sheet of a company provides information about the financial health of a company. Understanding and analysing the balance sheet data is an integral part of financial analysis.
Balance Sheet Structure
Balance sheets structure will have minor differences between organisations and industries. But these must include assets, liabilities and equity.
Plant, Property, and Equipment (PP&E) capture the company’s tangible fixed assets. They are noted net of depreciation. Company’s intangible assets include patents, licenses, and secret formulas. Unidentifiable intangible assets include brand and goodwill.
Inventory includes amounts for raw materials, work-in-progress goods, and finished goods. Cash Equivalents include assets that have short-term maturities under three months or assets that the company can liquidate on short notice. Trade Receivable includes the balance of all sales revenue still on credit.
Share Capital is the value of funds that shareholders have invested in the company. Retained Earning is the total amount of net income the company decides to keep.
Long-Term Debt outlines all of the company’s outstanding debt, the interest expense, and the principal repayment for every period.
Trade Payable is the amount a company owes suppliers for items or services purchased on credit. Current Debt (Notes Payable) includes obligations that are due within one year’s time.