Tips On Reading A Balance Sheet - Josephgalvez/Joseph GitHub Wiki

Also, known as the "statement of financial position" a balance sheet shows the assets, liabilities and net worth of a company or owner. It makes one of the pillars of a company financial statement. The other pillars are cash flow statement and income statement.

Chartered accountants Kent can help with these and other financial tools to propel your business.

It is important to know how to read and interpret the balance sheet.

1. Balance sheet equation: All your assets must equal liability and shareholder's equity. Assets and liabilities are known in the normal interpretation. Shareholder equity is used by and accountants in Kent to determine financial health of the company.

It is the amount that would be returned to shareholders if assets were liquidated.

2. Know the current and non-current assets: These assets last for a year or less and can be converted to cash easily. They include non-restricted bank accounts and checks, cash and cash equivalents, and inventories.

Non-currents are whose value is realized after a year. These include tangibles such as machinery, computers, buildings and land. Depreciation or appreciation is calculated for them and this represents the economic cost or benefit of the asset life.

3. Know liabilities: These can either be current or long-term. Current are those that must be paid within a year. They include shorter-term borrowings and accounts payables and current portion (such as current loan interest) of long-term liabilities. Long-term liabilities include those paid after at least a year.

4. Know stakeholder equity: This is the initial money invested in the business. They are recorded inot the shareholder's equity account. Net earnings reinvested into the business are transferred from income statement to the shareholder's equity account.

5. Use ratio analysis: This provides insights into various operations. Debt-to-equity ratios for balance sheets for instance show financial condition and operational efficiency. Ratios are derived from more than one financial statement.

Chartered accountants in Kent can analyze your current financial information further than just using the above ratios. Accountants can also help with record keeping and well as complicated financial analysis. Financial analysis helps determines the areas which you would want to improve in order to augment your financial position and return to profitability if the business is doing badly.

Also, the analysis helps with future predictions of trends in the market based on your past performances. You can thus strategize for better performance in future using this analysis. Accountants in Kent can also help with valuation and using any formula such as NPV and discounting to calculate worth of a business. This is helpful if you want to sell the business or just know the net worth so that you can make strategic moves and then determine how much the business will have grown in a year before selling. You might also want to know the value if acquiring another entity or may be getting a new partner so that you can know what their equal contribution could be.