Skip to main content

An Apparatus called BALANCE SHEET

Well, we all are aware abt the SATYAM fiasco, a lot many of us are familiar with BALANCE SHEET as the financial instrument, a device to detect liquidity... a tool for defining financial position of a business...

Balance sheet is a statement of its wealth (assets) and what it owes to others (liabilities) at a particular point in time.
  • The assets could be fixed assets like land, buildings, plant and machinery.
  • They could be movables like cars or computers.
  • They could also be liquid assets in the form of cash reserves or receivable payments due to the company from those it has sold goods to.

  • Liabilities are anything the company has to pay to others.
  • They would include payments due to its suppliers.
  • Loans taken from others as well as interest due on those loans would also be part of the liabilities.
  • What is owed to the shareholders would also fall in this category.
Construction:
Balance sheets present this information not explicitly under the heads assets and liabilities, but rather as a statement that gives sources of funds on top and application of funds below.

  1. All sources of funds effectively constitute liabilities.
  2. Share capital and reserves and surpluses form liabilities owed to the shareholder, while loans are liabilities towards others.
  3. The application of funds segment is a listing of the assets, except for one entry, which is current liabilities and provisions.
  4. The gross value of assets , minus the current liabilities, gives the figure for net current assets.
Net current assets must be equal to total figure at the end of the sources of funds segment. This also means that net assets and net liabilities are always equal, hence the term balance sheet.


Application of funds includes value of fixed assets, of current assets (like receivables or inventories ) as well as investment.

Entries in the balance sheet are explained in more detail in annexed schedules.

Use:

Balance sheet in itself cannot adequately tell us whether a company is in sound financial health or not.

We must also look at balance sheets for earlier years as well as profit and loss accounts of the company. This is because while a balance sheet presents the picture of the company’s finances at a particular point in time, the profit and loss account tells us how the company has performed over a period of time—a quarter, half-year or full year.


SATYAM has made us learn the basics before investing.. :-) :-(

Love it or hate, but this is the fact!!

Comments

Popular posts from this blog

All they want is a pleasant experience for us

My experiences with this gloomy world continue. I may sound repetitive and annoying, but there's a reality check for all of us who think that the world is fine as long as the Covid-19 doesn't hit us and our paychecks continue to flow into the banks. 
The store in the picture is amongst the busiest in the area, always remains full and explodes with the people on the Saturdays. A typical brand in a store, let's say a Van Heusen makes about ₹200,000 to ₹220,000 of sales on the weekend. As of today, the store does about ₹10,000 to ₹15,000 of revenues of the same brand, and the footfalls are not even 5 per cent of what they otherwise used to witness. Ironically, a store of this size would have 8-10 salesman with an average basic salary of ₹10,000 to ₹12,000 a month and the balance they earn (~₹5,000-₹7,500) is all linked to the sales of the brand. For them, purchases from the store cover-up for the livelihood, savings and the investments and there are no concept of "work fr…

The new age crisis

I don't know who I should credit or discredit, but last couple of years have been incredible for India and it's people and it is not in a good way. Disappointed to note that the politics has completely taken over us and the ideological differences have reached our houses and personal devices. We are not only fighting amongst us on difference of opinion, but also ensuring that the dissent against a majoritarian view is killed to its core, to the extent that the voice is never raised against any impending thoughts or disagreements we may have. 
I am deeply saddened by the fact that most of us now are actually made to believe that the opinion shared by a larger section of society is deemed right since it has the weight of a the population around, and in case you have reservations to even contest that, you are probably branded as a threat. 
I may have had little problems with CAA or NRC if it wasn't done for the political incentives and the treatment of the people not sharing th…