The Balance Sheet In Detail

What Is Balance Sheet

A balance sheet is a type of financial statement that is used to report an organization's so-called "book value." This value can be determined by deducting the total amount of the company's liabilities and shareholder equity from the total amount of the company's assets.

A balance sheet provides both internal and external analysts with a snapshot of how a company is performing in the period in which it is currently operating, how it performed in the period in which it most recently operated, and how it anticipates performing in the period most immediately ahead of it. Because of this, balance sheets are an essential tool for individual and institutional investors, key stakeholders within an organisation, and any outside regulators who need to see the status of an organisation during specific periods of time.

Table of Content

Who analyzes balance sheets and why?

Proforma of Balance Sheet

A) Assets

Current Assets

1) Cash and cash equivalents

2) Accounts receivable

3) Inventory

4) Other current assets

Non-current Assets

1) Long-term marketable securities

2) Property Plant and Equipment

3) Goodwill and Intangible assets

4) Other non-current assets

B) Liabilities

Current Liabilities

1) Accounts payable

2) Accrued expenses

3) Current portion of long-term debt

4) Short Term Debt

5) Other current liabilities

Non-current Liabilities

1) Deferred revenue (non-current)

2) Right of Use (ROU) Lease

3) Deferred Tax

4) Long-term debt

C) Shareholders’ Equity

1) Common stock

2) Preferred stock

3) Treasury stock

4) Retained earnings

Who analyzes balance sheets and why?

The balance sheet is the document that one should consult first when seeking information about the financial health of a company. Investors will use it to evaluate the potential of a company. Loan officers are interested in learning about the company's current debt profile and determining whether or not the company is a good candidate for a loan. The company's vendors want to know whether or not they can count on getting paid by this business. The balance sheet could be reviewed by government agencies for a variety of reasons, including compliance and tax purposes.

Proforma of Balance Sheet

Walmart Inc. Analyst Interview
Walmart Inc.

Let's Get A Better Grip On The Balance Sheet's Individual Elements.

A) Assets

An asset is anything that a company owns that has some amount of measurable value, which means that it could be sold in order to generate cash and be used for something else. They are the tangible and intangible assets that are owned by the company.

The term "assets" can be subdivided even further into "current assets" and "non-current assets."

Current Assets:

Current assets, also known as short-term assets, are those that a business typically anticipates being able to convert into cash within the next year. Examples of current assets include cash and cash equivalents, accounts receivable, prepaid expenses, inventory, and marketable securities.

1) Cash and cash equivalents:

Because it is thought to be the form of assets that can be converted into cash the quickest, the balance sheet positions it in the top left corner. Cash and cash equivalents are considered to be the same thing because, for the most part, cash equivalents consist of assets with maturities of less than three months or that can be liquidated on very short notice.

2) Accounts receivable:

It is the amount of sales that have been carried out on credit but have not yet been collected as of the date that the balance sheet was prepared. This figure is presented after deducting all of the provisions that were made to account for questionable accounts (high probability of becoming bad debt). In the event that entities are successful in collecting the receivables, the value of their accounts receivable will decrease, while their cash reserves will increase.

3) Inventory:

It is a representation of the amount of money that has been invested in the company in the form of finished goods, goods that are still in the process of being finished, and raw materials. The value of this account is moved to the income statement in the form of cost of goods sold in accordance with the matching principle whenever sales are acknowledged. This happens when the matching principle is applied.

4) Other current assets:

Other current assets is the default classification for general ledger accounts classified as "current assets." Cash, marketable securities, accounts receivable, inventory, and prepaid expenses are not included. Because these major accounts are itemised separately on the balance sheet and typically contain material amounts that should be tracked separately, they are not included in the other current assets classification.

Non-current Assets:

Non-current assets, also known as fixed assets or long-term assets, are investments that a company does not anticipate converting into cash in the near future. Examples of non-current assets include real estate, machinery, patents, trademarks, and other forms of intellectual property.

1) Long-term marketable securities:

Marketable debt securities are held as short-term investments, and it is anticipated that they will be sold within the next twelve months. If it is anticipated that a debt security will be held for more than one year, then it should be categorised as a long-term investment on the balance sheet of the company.

2) Property Plant and Equipment:

It is the section of a company's books that records all of its tangible fixed assets. Buildings, machinery, and other types of equipment are the most common components of PP&E. PP&E is recorded on the net of depreciation, with the exception of land, which is treated differently.

3) Goodwill and Intangible assets:

When accounting for a company's fixed assets, it takes into consideration all of the intangible assets that the company possesses. One can classify these assets as either identifiable or unidentifiable intangible assets depending on their level of specificity. Identifiable intangible assets include things like trademarks and licences, whereas unidentifiable intangible assets include things like goodwill and the value of a brand. Patents and licences are examples of identifiable intangible assets.

4) Other non-current assets:

Other Non-Current Assets is a heading that should be used for any assets that do not fall into the categories of Current Assets, Fixed Assets, or Investment Assets.

B) Liabilities:

A debt that a business or other organisation has to pay back to another party is considered a liability for that entity. This could be a reference to taxes payable, money owed to suppliers, bonds payable, or payroll expenses. Other possible references include rent and utility payments, debt payments, and debt payments.

In the same way that assets can be split into current and non-current categories

Current Liabilities:

Liabilities that are considered current or short-term are typically those that are due within one year. Examples of current liabilities include accounts payable and other expenses that have been accrued.

1) Accounts payable:

It is the monetary amount that a business is obligated to pay to its suppliers for any goods or services that were obtained on credit and represents the dollar value of that obligation. When debts are paid off, the value of accounts payable and cash accounts both decrease by the same amount.

2) Accrued expenses:

Accrued expenses are costs that a business has incurred, such as employee compensation or utility bills, but for which payment has not yet been made. This is most commonly the case because the company's invoice is still in the process of being processed.

3) Current portion of long-term debt:

This account is a representation of the portion of the long-term debt that is due to be repaid within the next calendar year. In essence, the principal payment that is due the following year is accounted for under this head. The debt amortisation schedule can be used to derive this information. This account may be represented separately in some circumstances, and its balance may be included as a component of the long-term debt that falls under the non-current liabilities heading.

4) Short Term Debt:

Short-term debt securities have maturity dates that are within the next year's time frame, which means they will be called due soon (including the current portion of long-term debt).

5) Other current liabilities:

Other current liabilities are the residual liabilities of an organisation that are not classified within one of the other current liability accounts. These liabilities are not included in any of the other current liability accounts. It is a line item in the balance sheet that aggregates several current liability accounts that are too minor to report separately. This line item is called the current liability total. It is typically the last line item that is stated within the section of the balance sheet that is devoted to current liabilities.

Non-current Liabilities:

Non-current liabil