5.4 Statement of Financial Position Flashcards
What is the balance sheet also known as?
Statement of financial position
What do assets represent in a business?
Items of value owned by the business
What are fixed/non-current assets?
Assets that remain in the business for more than a year, e.g., buildings, vehicles, equipment
What is depreciation?
The process by which the value of fixed assets falls over time
What are short-term/current assets?
Assets owned only for a very short time, e.g., inventory, trade receivables, cash
What are intangible non-current assets?
Assets that cannot be touched or felt, e.g., copyrights and patents
What do liabilities represent?
Debts owed by the business to its creditors
What are long-term/non-current liabilities?
Liabilities that do not have to be repaid within a year, e.g., loans, debentures
What are short-term/current liabilities?
Liabilities that need to be repaid within a year, e.g., trade payables, overdraft
What is the formula for working capital?
CURRENT ASSETS - CURRENT LIABILITIES
What does shareholder’s equity include?
Total amount of money invested by shareholders, including share capital and reserves
How can shareholders see if their stake in the business has changed?
By looking at the total equity figure on the balance sheet
What is the formula for shareholders equity?
TOTAL ASSETS - TOTAL LIABILITIES
What is the equation for total assets?
TOTAL LIABILITIES + SHAREHOLDERS EQUITY
What is the formula for capital employed?
SHAREHOLDERS EQUITY + NON-CURRENT LIABILITIES
What can investors estimate by comparing current assets and current liabilities?
Whether a firm has sufficient funds to pay off its short-term obligations
What does comparing total liabilities to total equity indicate?
The debt-equity ratio and potential borrowing risks
Why do investors examine cash on the balance sheet?
To determine if there is enough available to pay dividends
What can managers examine on the balance sheet to improve finance?
Assets that could be sold off without harming the business
What does comparing reported inventory assets to sales indicate?
Inventory turnover level and potential excess inventory
