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Exclusive: Balance sheet: How to use this financial statement

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Balance sheet: How to use this financial statement

#Balance #sheet #financial #statement

Do you gloss over the balance sheet in your business financial statements because you’re not sure what the numbers are telling you?

You are definitely not alone.

But that means you’re also missing out on seeing the big picture: the net worth of your business, how much money you have, and where that money is kept.

In this article, we guide you through the basic terms plus how to read the statement as a whole, so you can gain valuable insights into your business.

Here’s what we cover:

What is a balance sheet and why is it important?

It’s one of the three core financial statements.

The balance sheet provides an overview of the state of your business finances at a specific point in time, also known as the reporting date.

It’s generally used alongside the other two types of financial statements: the profit and loss account (also known as the profit and loss statement or income statement), and the cash flow statement.

Because the balance sheet reflects every transaction since your business started, it reveals your business’s overall financial health.

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It tells you exactly what your business owns and is owed, as well as the amount you as an owner have invested.

But what it can’t do is give you a sense of the trends playing out over a longer period on its own.

For this reason, you will need to compare your latest balance sheet to previous ones to examine how your finances have changed over time.

Then you’ll be able to see how far your business has come since day one.

The sections of the balance sheet

The balance sheet is made up of three parts:

  • Assets
  • Liabilities
  • Shareholders’ equity.

The way they are shown on the statement is based on the fundamental accounting equation:

Assets = Liabilities + Equity.

The statement must always balance, hence the name.

That’s because your business has to pay for all the things it owns (assets) by either borrowing money (taking on liabilities) or taking it from you, the owner (issuing shareholder equity).

Let’s look into each section of the balance sheet in more detail.

What are assets?

Assets represent the use of funds. They are all the things of value that are owned by your business or due to your business.

The business will use cash or other funds provided by either a creditor or investor to acquire assets.

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Assets on the balance sheet are listed from top to bottom in order of their liquidity. This is the ease with which you can convert them into cash.

You’ll notice they’re also divided between current assets, fixed assets and intangibles.

Current assets are those that can be converted into cash in less than one year. These include cash in the bank, trade accounts receivable, prepaid expenses and inventory.

Non-current assets are made up of fixed assets and intangibles.

Fixed assets represent the use of cash to purchase assets whose life exceeds one year, such as land, buildings, machinery and equipment, furniture and fixtures, and leasehold improvements.

Intangibles are assets with an undetermined life that may never be converted into cash.

Therefore, for most analysis purposes, intangibles are ignored as assets and are deducted from equity because their value is difficult to determine.

Intangibles consist of assets such as research and development, patents, market research and goodwill. Intangibles are similar to prepaid expenses because you’re purchasing a benefit that will be expensed at a later date.

What are liabilities?

Liabilities represent sources of cash or its equivalent invested into the business by lenders.

Lenders generally consist of trade suppliers, employees, tax authorities and financial institutions. This source of funds enables your business to continue or expand operations.

Liabilities on the balance sheet are split between current liabilities and long-term liabilities.

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Current liabilities are obligations that will mature and must be paid within 12 months and are listed in order of their due date.

These include trade accounts payable, accrued expenses, and current portions of long-term debt.

Long-term liabilities are those obligations that will be payable in the following year(s) such as the non-current portion of long-term debt and loans payable to owners.

What is shareholders’ equity?

This section represents the owners’ share in the financing of all the assets.

If you add up all of the resources your business owns (the assets) and subtract all of the claims from third parties (the liabilities), the residual leftover is the shareholders’ equity.

This section typically includes two key elements.

The first is money contributed to the business, which comes in the form of an investment in exchange for a degree of ownership, typically represented by shares.

The second is earnings that your business generates over time and retains.

How to read the balance sheet

Before delving into the information on your balance sheet, you first need to ensure that it is in balance.

Does the value of your total assets equal the combined value of liabilities and equity?

If they don’t balance, you’ll need to look into the problem. There may be incorrect or misplaced data, inventory level errors, or exchange rate miscalculations.

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Overall, a positive bottom line means there’s value in the company for you as the owner.

A negative balance sheet means there have been more liabilities than assets, so overall there’s no value in the company available to you at that point in time.

Your business can have made a profit for a particular financial year and still have a negative balance sheet if there have been a series of losses in the years prior.

When reviewing your assets, it’s helpful to see the spread between current and non-current.

Are your assets evenly spread or is all the money tied up in fixed assets, for example? The distribution of your assets can help you identify potential cash flow issues.

When reviewing liabilities, again take a look at the distribution of current versus long-term liabilities for insights into your cash flow.

If you’ve lent money to the company then its largest creditor could well be the shareholder’s loan account.

Another way to extract information contained in the balance sheet is with financial ratio analysis.

The main types of ratios that use the balance sheet are financial strength ratios and activity ratios. Just be aware that some ratios will need information from more than one financial statement.

Financial strength ratios provide information on how well your business can meet its obligations.

For example, the debt-to-equity ratio (calculated as total liabilities / total shareholders’ equity) is a metric that shows the ability of your business to pay for its debts with equity, if the need should arise.

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The current ratio (current assets / current liabilities) will tell you whether you have the ability to pay all your debts in the next 12 months.

Activity ratios focus mainly on current assets to show how well your business manages its operating cycle, which include receivables, inventory and payables.

These ratios can provide insight into your operational efficiency.

Balance sheet vs cash flow statement vs profit and loss account

The balance sheet shows a snapshot of your assets and liabilities at a specific point in time.

But you’ll notice it doesn’t show the amount of cash that was spent, nor the profit or revenue generated.

This is because the balance sheet doesn’t show your actual financial activity across a period of time. It only shows the results of what your business owns and owes as a result of that activity.

This is why, to get an overall picture of its performance, you’ll need to look across all three financial statements.

The profit and loss account will summarise your business revenues, costs and expenses, so you can ultimately understand if you were profitable.

The cash flow statement helps you to understand how much cash came in and out of the business during that time and where it was spent.

This statement doesn’t show your business’s financial health as much as give you ideas about where the money is going and potentially how you can budget differently.

Final thoughts

The balance sheet, while only a part of the financial picture, is integral for understanding how your business is funded and the value of assets it holds.

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Start becoming familiar with the information contained in the balance sheet, and it will unlock plenty of insights into your cash flow management and your ability to pay your obligations as they arise.

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Exclusive: If You Answer Yes to Any Of These 7 Questions, Your Workplace Is Probably More Toxic Than You Think – TalkOfNews.com

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If You Answer Yes to Any Of These 7 Questions, Your Workplace Is Probably More Toxic Than You Think

#Answer #Questions #Workplace #ProbablyMore #Toxic

The year was 1944, and the Allies were at war. In Washington, the precursor agency to the CIA had an idea on how to help.

Their plan: Write and publish a how-to guide to toxic workplaces, and smuggle it to sympathetic workers behind enemy lines who hoped to sabotage the Axis from within. 

Not everyone could carry a gun or blow up train tracks and military installations, the thinking went, but they could make their workplaces so inhospitable and inefficient that they might slow down the Nazi war machine.

The guide was called the Simple Sabotage Field Manual. You can read the whole thing online, today. 

What’s most fascinating is how many of the things that we complain about in business today were almost the exact same things that Allied spies advised doing to create toxic workplaces eight decades ago.

In fact, if you’re running a business, it’s worth asking whether any of your employees seem to practice these behaviors regularly. 

Do they insist on holding meetings when less-intrusive means of discussion will do?

“Hold conferences when there is more critical work to be done … When possible, refer all matters to committees, for ‘further study and consideration.’ Attempt to make the committees as large as possible–never less than five.”

Do they talk on and on and on, at length?

“Make ‘speeches.’ Talk as frequently as possible and at great length. Illustrate your ‘points’ by long anecdotes and accounts of personal experiences. Never hesitate to make a few appropriate ‘patriotic’ comments.”

Do they insist on revisiting things that have already been decided?

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“Haggle over precise wordings of communications, minutes, resolutions. … Refer back to matters decided upon at the last meeting and attempt to re-open the question of the advisability of that decision.”

Do they treat colleagues and the people who report to them unfairly?

“To lower morale and with it, production, be pleasant to inefficient workers; give them undeserved promotions. Discriminate against efficient workers; complain unjustly about their work.”

Do they seem to have constant excuses for not working?

“Contrive as many interruptions to your work as you can: when changing the material on which you are working, as you would on a lathe or punch, take needless time to do it. If you are cutting, shaping or doing other measured work, measure dimensions twice as often as you need to. When you go to the lavatory, spend a longer time there than is necessary. Forget tools so that you will have to go back after them.”

Do they seem paralyzed and unable to act?

“Advocate caution. Be ‘reasonable’ and urge your fellow-conferees to be ‘reasonable’ and avoid haste which might result in embarrassments or difficulties later on. … Be worried about the propriety of any decision–raise the question of whether such action as is contemplated lies within the jurisdiction of the group or whether it might conflict with the policy of some higher echelon.”

Do they have a hard time working with colleagues?

From the sabotage guide: 

“Never pass on your skill and experience to a new or less skillful worker. Give lengthy and incomprehensible explanations when questioned. When training new workers, give incomplete or misleading instructions.”

Do they set fires at work, or else call in false police reports to send emergency workers to the wrong parts of the city?

OK, obviously this one would go beyond just creating a toxic workplace, and the fact that they’re on the list is a reminder that the sabotage guide was in fact intended for warfare. 

But, if some of the other items on this list seem a little familiar, maybe it’s worth an investigation. You might realize your workplace is more toxic than you think.

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.


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Exclusive: Spirit delays shareholder vote on merger hours before meeting to continue deal talks with Frontier, JetBlue – TalkOfNews.com

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Spirit Airlines says it will decide on competing JetBlue, Frontier bids before the end of June

#Spirit #delays #shareholder #vote #merger #hours #meeting #continue #deal #talks #Frontier #JetBlue

A Spirit Airlines plane on the tarmac at the Fort Lauderdale-Hollywood International Airport on February 07, 2022 in Fort Lauderdale, Florida.

Joe Raedle | Getty Images

Spirit Airlines on Wednesday delayed shareholder vote on its proposed merger with Frontier Airlines until July 8, hours before a meeting scheduled for Thursday so it can further discuss options with Frontier and rival suitor JetBlue Airways.

It is the second time Spirit has delayed a vote on its planned combination with Frontier and extends the most contentious battle for a U.S. airline in years.

Spirit originally scheduled Thursday’s vote for June 10 but had delayed that for the same reasons.

Both Frontier and JetBlue have upped their offers in the week before the scheduled vote approached.

“Spirit would not have postponed tomorrow’s meeting if they felt they had the votes,” said Henry Harteveldt, a travel industry consultant and president of Atmosphere Research Group. Spirit didn’t comment on whether that is the case.

“We compliment the Spirit Board for listening to their shareholders, who clearly were not supportive of the Frontier transaction, and adjourning the Special Meeting,” JetBlue CEO Robin Hayes said in a statement later Wednesday.

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“It’s clear that Spirit shareholders have now handed the Spirit Board an undeniable mandate to reach an agreement with JetBlue.”

“This is like the end of a soap opera episode,” Harteveldt added.

Frontier and Spirit first announced their intent to merge in February. In April, JetBlue made an all-cash, surprise bid for Spirit, but Spirit’s board has repeatedly rejected JetBlue’s offers, arguing a JetBlue takeover wouldn’t pass muster with regulators.

Either combination would create the United States’ fifth-largest carrier.

JetBlue has fired back at Spirit, saying it did not negotiate in good faith, setting off a war of words between the airlines as they competed for shareholder support ahead of the vote.

Frontier didn’t immediately comment about the postponed vote.

Spirit shares were up about 2% in afterhours trading, while Frontier was up more than 1% and JetBlue was down 1%.

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Exclusive: Get hype for the first images from NASA’s James Webb Space Telescope – TalkOfNews.com

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Get hype for the first images from NASA’s James Webb Space Telescope

#hype #images #NASAs #James #Webb #Space #Telescope

Very soon, humanity will get to view the deepest images of the universe that have ever been captured. In two weeks, the $10 billion James Webb Space Telescope (JWST) — NASA’s super expensive, super powerful deep space optical imager — will release its first full-color images, and agency officials today suggested that they could just be the beginning.

“This is farther than humanity has ever looked before,” NASA Administrator Bill Nelson said during a media briefing Wednesday (he was calling in, as he had tested positive for COVID-19 the night before). “We’re only beginning to understand what Webb can and will do.”

NASA launched James Webb last December; ever since, it’s been conducting a specialized startup process that involves delicately tuning all 18 of its huge mirror segments. A few months ago, NASA shared a “selfie” marking the successful operations of the IR camera and primary mirrors. Earlier this month, the agency said the telescope’s first images will be ready for public debut at 10:30 AM ET on July 12.

One aspect of the universe that JWST will unveil is exoplanets, or planets outside our Solar System — specifically, their atmospheres. This is key to understanding whether there are other planets similar to ours in the universe, or if life can be found on planets under atmospheric conditions that differ from those found on Earth. And Thomas Zurbuchen, associate administrator for NASA’s Science Mission Directorate, confirmed that images of an exoplanet’s atmospheric spectrum will be shared with the public on July 12.

Essentially, James Webb’s extraordinary capacity to capture the infrared spectrum means that it will be able to detect small molecules like carbon dioxide. This will enable scientists to actually examine whether and how atmospheric compositions shape the capacity for life to emerge and develop on a planet.

NASA officials also shared more good news: The agency’s estimates of the excess fuel capability of the telescope were spot on, and JWST will be able to capture images of space for around 20 years.

“Not only will those 20 years allow us to go deeper into history and time, but we will go deeper into science because we will have the opportunity to learn and grow and make new observations,” NASA deputy administrator Pam Melroy said.

JWST has not had an easy ride to deep space. The entire project came very close to not happening at all, Nelson said, after it started running out of money and Congress considered canceling it entirely. It also faced numerous delays due to technical issues. Then, when it reached space, it was promptly pinged by a micrometeoroid, an event that surely made every NASA official shudder.

But overall, “it’s been an amazing six months,” Webb project manager Bill Ochs confirmed.

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