B ALANCE S HEETS

W HAT YOU NEED TO K NOW A balance sheet is an accounting state that shows an organization's assets and liabilities at a particular point in time It records the value of assets owned What the organization owes to others (liabilities) How the organization was financed

A SSETS Assets are what the organization owns and what is owed to the organization. Everything the organization owns that has a monetary value and/or a measurable cost can be seen as an asset Assets bring financial benefit through their sale- for example selling assets such as stock or equipment

T YPES OF ASSETS Fixed Assets Provide a benefit for more than 12 months Tangible assets Intangible assets Financial assets Current Assets Provide a benefit for less than 12 months Stock Debtors Cash

L IABILITIES The amount an organization owes to others and which have monetary value The organization is obliged to pay its liabilities to other people or organizations

T YPES OF LIABILITIES Liabilities can be: Short term (current liabilities) Amounts due within 12 months Trade creditors – money owed to suppliers Financial debts- loan repayments within a year Bank overdrafts – repayable on demand Long term Loans which have to be repaid over a period of more than 12 months Long term trade creditors Mortgage Loan

E QUITY, S HARE C APITAL AND R ESERVES Equity The total investment of shareholders in the company Share Capital The capital of the company divided into shares Reserves A fund belonging to the owners of the organization which represents value retained in the organization

W HAT TO LOOK FOR.. Net Assets Are they growing or declining? Net Current Assets Balance between current assets and current liabilities Solvency of the business Trade Debtors and Trade Creditor Payments Volume of debtors and creditors Balance Between Debt and Equity Commitment to pay interest

I NTERPRETING A BALANCE SHEET Comparisons Historical Competitors Be Aware… A balance sheet for an organization in one type of market will be very different from one in very different type of market Competitor analysis is only useful if the firms are of similar size and product/service range Take note of the date the balance sheet was produced- certain times of year may be more appealing…

W INDOW D RESSING This is defined as presenting company accounts in a manner which enhances the financial position of the organization The Balance Sheet does not show.. The true value of an organization because it does not include current value of intangible assets, or property. Furthermore it does take into account depreciation and the quality of fixed assets

W HAT IS NOT T HERE … An Organization’s market value Intangible Assets e.g. workforce, knowledge management Market Share True value of Fixed Assets Performance trends or indicators

P ROFIT AND LOSS STATEMENT This shows how much profit or loss the organization has made over the reporting period It measures an organization’s sales revenue and expenses over a period of 1 year The key figure is net profit after interest and tax

W HY ARE PROFITS IMPORTANT Profits are a motivating force Profits provide financial reward for investors Profits facilitate growth Profits are a measuring rod of performance Profits play a vital role in allocating resources

3 PARTS YOU NEED TO KNOW Trading Account P & L Account Appropriation Account

C OST OF S ALES – ADVANCED FORMULA Opening Stock $650 plus Purchases (additional stock purchased) $1220 Minus Closing Stock (remaining stock at the end of accounting period) ($500) Equals Cost of Sales……. $

G ROSS P ROFIT Tells you how well the Organization is trading but does not take into account all the cost Measures how much was made directly from what the organization is selling, before it starts to pay overheads

N ET P ROFIT This is equal to gross profit minus all indirect expenses Arguably most important figure in P & L

P ROFIT & L OSS V. B ALANCE S HEET Profit & LossBalance Sheet Main Elements Income (revenue)Assets Expenses (costs)Liabilities Profit or LossCapital Period Covered 1 yearA point in time Main Focus ProfitsValue of net assets