Presentation on theme: "BALANCE SHEET ANALYSIS. CASH (PRONOUNCED KAAASH) Current Assets – “Liquid” - Usually sitting in a bank/money market. What can you do with this?? "— Presentation transcript:
CASH (PRONOUNCED KAAASH) Current Assets – “Liquid” - Usually sitting in a bank/money market. What can you do with this?? Reinvest in the Company Research and Development Advertising Buyback Shares of stock Dividends Why do you NOT want this amount too high???
ACCOUNTS RECEIVABLE : (PRONOUNCED ACCOUNTS RECEIVABLE) Money that is owed to you for a product or service that you provided. Good has already changed hands You negotiate terms – 15,30,60 days payment Must be careful and diligent in collecting this money. The worse off your business, the harder it is to get favorable terms. You don’t want to “write down your receivables”, meaning someone can’t pay off their debt to you.
INVENTORY What you have ready to sell at a point in time. You have to manage this number… Why??? Risk of spoilage Risk of product going out of style or out of favor Storage Costs
GOODWILL / INTANGIBLE ASSETS Values on items that you cannot touch. These include things like patents, brands, trademarks, reputation Be careful on judging a company on this number…. Many companies will overstate this number to make themselves look better than they are.
INVENTORY TURNOVER How many times in a year, you sell all of your merchandise… How do I calculate this??? (Current Year Cost of Goods Sold (AKA Cost of Revenue)) (Average of Last Year and Current Year’s Inventory Amount) For example, if you get 4 for your inventory turnover, that means you sell your merchandise 4 times in a year. You can calculate the number of days it takes you to sell it out by dividing this number into 365.
CURRENT LIABILITIES Money that you owe within the next year Short term debts Money that you will pay back in the current year on your long term debt Accounts Payable – What you owe for supplies or products that you use to sell your product, or the product itself.
WORKING CAPITAL Current Assets – Current Liabilities = Working Capital Money that you have to spend on the operations of your firm.
CURRENT RATIO Current Ratio = (Current Assets / Current Liabilities) What number do you want this to be greater than??? Yes, you are correct….You want it to be at least 1 What does it tell you??? Will you have enough money to pay off all your debts if they come due today Do you get worried if that number is too high? Why?
LONG TERM DEBT Money that you owe on long term borrowings like mortgages, equity loans, lines of credit, etc.
DEBT / EQUITY RATIO (Total Debt / Shareholders Equity) * 100 Be careful if this number is greater than 50%