BALANCE SHEET AND

ITS ANALYSIS

SCOPE

INTRODUCTION TO B/S.
STRUCTURING OF B/S.
ANALYSIS

WHY,HOW AND FOR WHOM.

TOOLS OF ANALYSIS.

RATIO ANALYSIS.
COMPARATIVE ANALYSIS.

INTRODUCTION TO B/S

A B/S IS A STATEMENT OF FINANCIAL

POSITION OF A CONCERN AT A
GIVEN DATE OF AN A/C PERIOD.
IT IS PREPARED FROM A TRIAL
BALANCE.
IT REPRESENTS THE ASSETS &
LIABILITIES EXISTING ON THE DATE
OF CLOSING OF A/C.

(CONTD)

ASSETS CAN BE CLASSIFIED :

FIXED ASSETS.
FLOATING.
FICTICIOUS ASSETS.

LIABILITIES CAN BE CLASSIFIED:

FIXED LIABILITIES.
CURRENT LIABILITIES.
CONTINGENT LIABILITIES.

FORMS OF B/S

AS PER THE COMPANIES ACT,IT CAN

BE MADE EITHER IN HORIZONTAL
FORM OR VERTICAL FORM.
A B/S HAS TWO SIDES- LEFT
&RIGHT.
THE LEFT SIDE IS THE LIABILITIES &
RIGHT SIDE IS ASSETS.

STRUCTURING OF B/S

ARRANGEMENT OF ASSETS &

LIABILITIES IS CALLED MARSHALLING.
THE ASSETS & LIABILITIES ARE
ARRANGED ON THE B/S IN
ACCORDENCE WITH TWO FACTORS:

ORDER OF LIQUIDITY.
ORDER OF PERFORMANCE.

(CONTD)

ORDER OF LIQUIDITY: THE MOST

LIQUID ASSETS ARE SHOWN FIRST
FOLLOWED BY THE ASSETS WHICH
ARE LESS EASILY REALISED.
IN THE CASE OF LIABILITIES MOST
PRESSING LIABILITIES ARE PLACED
FIRST.

(CONTD)

ORDER OF PERFORMANCE: IN THIS

THE FIXED ASSETS & LIABILITIES
APPEAR FIRST FOLLOWED BY
FLOATING ASSETS & LIABILITIES.
THIS IS THE MOST FOLLOWED
NORM.

BALANCE SHEET AS ON
_____
LIABILITIES
SHARE CAPITAL
RESERVE &
SURPLUS
SECURED LOANS
UNSECURED LOANS
CURRENT
LIABILITIES
PROVISIONS

ASSETS
FIXED ASSETS
INVESTMENTS
CURRENT ASSETS
ADVANCES
MISC EXPENSES

ANALYSIS OF B/S

IF PROPERLY ANALYSED, B/S CAN

PROVIDE VALUABLE INSIGHT INTO A
FIRM PERFORMANCE.
IT IS HELPFUL IN ASSESSING
CORPORATE EXCELLENCE, JUDGING
CREDIT WORTHINESS,PREDICTING
BANKRUPTCY & ASSESSING MKT
RISKS.

ANALYSIS OF B/S
(CONTD)

THERE ARE THREE WELL DEFINED

GROUPS WHO HAS STRONG
INTEREST IN ANALYSING THE B/S:

THE MGT OF THE FIRM.

THE CREDITORS.
THE INVESTORS.

ANALYSIS OF B/S
(CONTD)

THE MGT IS INTERESTED IN

ANALYSIS OF OVERALL
PERFORMANCE OF THE COMPANY.
THE CREDITORS ARE INTERESTED IN
LIQUIDITY & LEVERAGE POSITION.
THE INVESTORS ARE PRIMARILY
CONCERNED WITH PROFITABILITY &
FINANCIAL RISKS.

TOOLS OF ANALYSIS

FINANCIAL RATIO IS THE MAIN

INTRUMENT OF B/S ANALYSIS.
IT MAY BE GROUPED INTO:

LIQUIDITY RATIOS.
LEVERAGE RATIOS.
TURNOVER RATIOS.
PROFITABILITY RATIOS.
VALUATION RATIOS.

RATIOS

LIQUIDITY

CURRENT RATIO

CA / CL

ACID-TEST RATIO

QA /CL

WC GAP RATIO

SHORT TERM BB/WC

GAP
QA/AVG DAILY OP
EXPENSES

INTERVAL MEASURE

RATIOS

LEVERAGE

DEBT EQUITY RATIO

DEBT-RATIO
INTEREST COVERAGE
RATIO
FIXED CHARGES
COVERAGE RATIO

DEBT/EQUITY
DEBT/ASSETS
EBIT/INTEREST
EBIT+ DEP/INT+LOAN
REPAYMENT/1-TAX
RATE

RATIOS

TURNOVER

INVENTORY TURNOVER
A/C RECEIVABLE

NET SALES/AVG
INVENTORY
NET CREDIT
SALES/AVG A/C
RECIEVABLE

AVG COLLECTION
PERIOD
FA TURNOVER
TA TURNOVER

AVG A/C REC/AVG

DAILY CR SALES
NET SALES/AVG NET FA
NET SALES/AVG TA

RATIOS

PROFITABILITY

GROSS PROFIT
MARGIN
NET PROFIT MARGIN
RETURN ON TA
EARNING POWER
RETURN ON EQUITY

GROSS PROFIT/NET
SALES
NET PROFIT/NET SALES
NET PROFIT/ AVG TA
EBIT/AVG NET WORTH
EQUITY EARNING/AVG
NET WORTH

RATIOS

VALUATION

PRICE EARNINGS
YIELD
MKT VALUE TO BOOK
VALUE

MKT PRICE PER SHARE/

EARNINGS PER SHARE
DIVIDEND + PRICE
CHANGE/ INITIAL PRICE
MKT PRICE PER SHARE/
BOOK VALUE PER
SHARE