The balance sheet is the main form of reporting of any organization, showing its financial position at a certain date. The information contained in this document is useful not only for accounting staff, but also for management, shareholders and investors, as it is a fairly accurate indicator of the financial "health" of a company. How do you read the balance sheet?
It is necessary
Balance sheet, calculator, mindfulness
Instructions
Step 1
Preliminary balance sheet analysis
Having received the balance in your hands, first study its appearance, evaluate the correctness of the design. The balance sheet must comply with the standard form, contain the full name of the organization, the date of compilation and all the necessary details. See if the equality of assets and liabilities is observed, and track how the balance sheet currency has changed (that is, the total amount for the asset or liability). If it has decreased or remained unchanged, this is an alarming signal that requires additional research.
Step 2
We analyze balance sheet assets
As you probably know, the balance sheet has two large sections - the assets of the enterprise (i.e. its economic resources) and liabilities (sources of formation of resources). This is the consolidated balance sheet structure.
Assets and liabilities need to be analyzed in two ways: horizontally, i.e. comparing the value of each item with its value at the previous date, and vertically, i.e. determining the share of the most important balance sheet items in its currency. Pay special attention to the main articles. Compare the growth rates of non-current and circulating assets - in general, the growth of circulating assets should outpace the increase in non-circulating assets, this indicates the mobility of capital. Track changes in the amount of accounts receivable - its growth may reflect the need for more persistent work with debtors. At the same time, an increase in the size of long-term investments is an indicator of the company's active investment policy, which, unfortunately, is not always justified, because funds are diverted from the main activity. In addition to the above, the item "Inventories" is very important, it also needs to be regularly monitored to avoid "overstocking" (to a lesser extent, this applies to trade organizations).
Step 3
We study the liabilities of the balance
When analyzing the liabilities of the balance sheet, first of all, pay attention to the ratio of equity and debt capital. The larger the share of borrowed capital, the higher the risk of being in a situation of insolvency. Calculate the rate of growth of equity capital: if they outstrip the rate of growth of borrowed capital, this is a positive moment. The growth of the share of reserves, funds and retained earnings is also positively assessed, since this reflects the efficiency of the business. As for the borrowed capital, the share of long-term liabilities should prevail, this creates the basis for the financial stability of the enterprise.
Step 4
We calculate financial ratios
Analysis of the balance sheet, in addition to studying its dynamics and structure, necessarily includes the calculation of financial ratios that characterize its liquidity and solvency of the organization, as well as its financial stability. Here you will have to arm yourself with a calculator. there are a great many of these coefficients. First of all, calculate the net assets (the procedure for calculating them is described in detail in the Letter of the Ministry of Finance dated 1996-05-08), the financial autonomy ratio (the ratio of equity to the balance sheet currency). Then estimate the balance sheet liquidity by calculating three ratios: current, quick and absolute liquidity. These metrics will give you a true picture of the company's position. In the future, it is necessary to consider in detail the "sore spots" of the balance, i.e. those moments that you could not assess unambiguously.
