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A company Balance Sheet is one of the three fundamental financial documents that are vital in financial accounting and modelling. The balance sheets are generally used by the accounting professionals to get complete financial information of company during a particular year (e.g. during the last day of a particular fiscal year when balance sheets are prepared by company officials).

Business solvency status can be identified easily through balance sheets. It also gives us an idea regarding the overall assets, liabilities, and equities held by shareholders in the company. It can also be considered as a report card of a particular company.

To prepare an accurate and well-structured balance sheet for your business, you can always choose Gen BAL, a successful software for balance sheet preparation that is available in the market today.

Using automated balance sheet preparation tools or software like Gen BAL allows you to prepare an accurate balance sheet with proper breakup structure for assets, liabilities and shareholder’s equity of your company.

Assets

Liability + Shareholder’s equity = Assets

The value of ownership generally represent the company assets, which can also be converted into cash (although the cash itself is an asset for a company).

Assets can also be categorized into two types- tangible and intangible asset.

Tangible assets contain various subclasses, including current assets and noncurrent asset. For example, assets like plant, machinery, land, etc. can be categorized as tangible assets.

On the flipside, non-Intangible assets are the ones that do not exist in physical form and can be identified as patent, intellectual property, goodwill, etc.

Liabilities

Liabilities are anything that a company has to pay back either within a year or after a few years.

Liabilities are something which needs to be paid back by a company either within a year or after a certain period as per the initial agreement. Liabilities can also be considered as a property against the loan for which you have to pay regular interest to use it.

Liabilities are of two types mainly- current and noncurrent liabilities.

Equities

The balance sheets of a company can be easily evaluated through a very crucial component called equity.

Shareholders equity denotes the value that is left over by the owners of a company for its shareholders in cases where they utilize company assets to meet its liability deeds. Those leftovers are known as equity.

Example

Here is an example of the balance sheet of Maruti Suzuki for the FY 2017-18.

The given example will offer more clarity on understanding the technical jargons associated with balance sheets that were mentioned above in this article:

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The assets mentioned on the left side of the above-given balance sheet of Maruti is divided into two parts- current and noncurrent asset.

Current assets are the ones which the company expects to be converted to cash within one year. Such assets include items like inventories, debtors, loans, cash and bank balances, etc.

Noncurrent assets, on the other hand, are the ones that are expected to take more than one year to be converted into cash by the company. The noncurrent asset includes items such as property, financial asset, intangible assets, capital work-in-progress (CWIP) etc.

We can easily identify from the given balance sheet of Maruti that a particular noncurrent asset, i.e., CWIP of the company has doubled whereas the long term investments have also risen to a great extent in 2018 when compared to 2017 (e.g. it can also be identified as YoY growth).

In FY 2017-18, the company has made significant investments in the new lands, plant, machinery, and debt mutual funds.

Looking at the current company assets in the balance sheet, the short term investments have decreased, whereas vice versa has been observed for short term financial assets.

In the FY 2017-18 period, the company has invested for a short period into debt mutual funds, so that it can liquidate it easily. The company has debtors, which have also increased during this period.

Thus, looking at both the data of current and noncurrent assets in the balance sheet, it can be easily said that company has made significant investments during FY 2017-18, which will pay out for them in upcoming few quarters or a year.

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Liability in the Balance Sheet

The liabilities in the given balance sheet can also be divided into two parts, i.e., current and noncurrent liability.

Current Liabilities are the ones that will arise in the upcoming year for the company. The example for current liabilities includes trade payables, short-term borrowings, provisions, etc.

On the flip side, noncurrent liabilities are the ones that need not to be settled in the next one year from the company end. Examples include long-term provisions, other long term liabilities, etc.

The liability data shows that long term liabilities have increased for the company and also it has taken a long term borrowing for the very first time.

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Last part of the balance sheet is related to equity. Equity denotes the ownership part of the company. Apart from shareholder’s equity in the company, other equities include reserves, retained earnings, securities premium reserve, etc. The equity portion in the balance sheet is given above.

The equity data in balance sheet indicates that reserve earnings of the company have risen.

Final Words

Now that you have an in-depth idea about the company balance sheets, its key components, and preparation mechanism, you can easily determine a company’s financial health based on the balance sheet performance data. To determine your own company’s financial health, you can always prepare a balance sheet to understand whether you have good or bad assets and liabilities.

To prepare an accurate and reliable company balance sheet, you can also use here an easy to download free trial version of Gen Balance Sheet for the making of cash flow statement.