Balance Sheet

Provides a snapshot of the companies financial position on the last day of the financial year.
Everything the company owns and everything the company owes.
This is the best measure for a companies overall outlook and is a summary of everything the company owns and owes on that particular date.
The balance sheet is the best measure on investor has of the overall health of the company.

Different Sources of Money

1) Assets (either fixed or current) - permanent capital (provided by the owners / shareholders)
This is the companies own money
2) Reserves
part of the profits that are put back into the business (rather than being paid to shareholders)
3) Debt / Borrowing - any money that has been borrowed

This needs to be interpreted with caution.
The position it shows on the last day of the company's year could be very different from what it would have drawn up 3 months earlier or 3 months later
Companies deliberately bring some items forwards or delay others
It amounts to excessive window-dressing.

parent company balance sheet
consolidated balance sheet - treats the 3 companies as if they were a single entity
group balance sheet

subsidiary companies
holding company

sale on credit - customer has 30 days to pay, ie have not received the money yet
incurs on expense - you have 30 days to pay, ie have not paid the money yet.

Assets - Fixed

What a company actually owns (eg plant, machinery, buildings, land etc)
Takes depreciation into account (or amortisation)

Assets - Current

Assets that are constantly changing (eg raw materials, finished products)

Liabilities - Current

  • Current Liabilities - What the company owes - Creditors

  • Short-term less than 1 year

Trade Creditors - Money the company owes for any good or services it has received
Corporation Tax - Tax it must pay off on profits (often labelled as Tax Payable)
Dividend Allocation - The total amount needed to pay a dividend to the shareholders
Bank Overdraft - Any overdraft taken out from a bank

Equity Liabilities - Long Term

Trade Debtors

Money owing to the company (customers who have bought products but have not yet paid)

Cash at Bank

The above four make up the Balance Sheet Total

Shareholder Funds = Share Capital + Retained Profits

Total Assets less Liabilities = Fixed Assets + Current Assets - Current Liabilities

  • Long term than 1 year

Long term loans - Has the heading Creditors
Once we have the Total Assets less Liabilities
we must subtract any medium or long-term debt to give us Net Assets


This is an item on a company balance sheet.

Debtors are people or other firms who owe money to the firm.

This will usually happen where the firm has sold goods with a period of credit.
The firm sells the good or service but allows the purchaser a period of credit to pay - usually a month.
During this month the purchaser owes the firm the money and is therefore a debtor.
Because most debts are relatively short-term they are considered current assets.
If a company sells goods and offers a period of credit then they have to ensure that all the debts are paid and that they are paid on time. This is known as credit control (or debt control).

There is a ratio which can be used to determine how efficient a company's credit control is:
=Debt collection period (in days) = (Trade Debtors / Sales Revenue) * 365

This figure (in number of days) measures how long on average it has taken the company to collect its debts.
The higher the figure the longer it has taken.

Shareholder Funds

Shareholders funds = original equity + rights issues + retained profits

Assets - represent money is is owed from other people
Assets and Liabilities - should always balance.

Assets are normally listed in descending order of liquidity:
balances at central bank
money at call or short notice
bank and trade bills of exchange
treasury bills
advances to customers
premises and equipment

Liabilities would be:
ordinary share capital
retained profits
customer deposits
bond issues
other borrowing
trade creditors

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