Analyzing Balance Sheet Flashcards
What is Equity share capital?
It is money raised by the company by issues shares to public
What is the purpose of issuing bonus shares?
To increase liquidity in the stock
What is securities premium account?
It is a form of capital reserves which arise from the issue of share at premium to its face value
What is contingency reserves?
It is the portion of surplus or retained earnings that are reserves for specific and general contingency
What is retained Earnings?
It refers to the accumulated profits that the company has retained over the years that are not yet distributed to the shareholders
For what securities premium account, contingency reserves and retained earnings are used?
Company uses these funds to purchase new assets, to replace existing ones , for expansion and for working capital requirements
What is non current liabilities?
It is also known as long term liabilities, represents the long term obligation which the company intends to pay off in long term generally after period of one year or more
What are the heads(things)present in non current liabilities?
1) Long term Financial Liabilities (borrowings)
2) Trade and other non current payables
3) Non current provisions
4) Deferred tax liabilities
What is long term financial liabilities?
It represents the amount of money that the company has borrowed through various sources
How you interpret Long term Financial liabilities?
1) some companies has cash surplus for future expansion and hence it has lower or no long term financial liabilities. It is a good sign for investing
2) some company has low or no long term financial liabilities indicates that lenders are refusing to lend to the company or company may be not taking initiatives to expand their business operations
What is non current trade payables?
These are trade payables which are paid after a period of one year. In such case company may have to pay interest payments on such payables
What is non current provisions?
It includes money set aside for employee benefits such as gratuity; leave encashment, provident fund etc
What is differed tax payments?
It accounts for the temporary difference between taxes that will come due in the future and taxes paid today . It is basically a provision for future tax payments( when company foresees a situation where it may have to pay additional taxes in the future it set aside some funds for this purpose and transfers it into deferred tax liability account)
What is current liabilities?
It represents the short term obligations which the company intends to settle or pay off in short term generally within a year or much prior to that
What does current liabilities include?
1) Short term Financial Liabilities (borrowings)
2) Trade and other current payables
3) Current provisions
What are assets made off?
1) Non current assets
2) Current Assets
What are the non current assets are made off?
Below for more than one year
1) Tangible assets like property,plants and equipment
2) Capital work in progress
3) Good will and other intangible assets
4) investments
5) trade Receivables
6) Loan and deposits
What is Tangible assets?
The assets which are normally meant for resale
Eg: Land , Buildings, furnitures ,vehicles , manufacturing equipment and office equipment, factory , warehouse , electronics , computers, shops , airplanes
What is capital work in progress?
It is all the expenses incurred for the generation of an asset before the balance sheet date
It is the work that is not yet complete but where capital expenditure has already been incurred
Eg: building under construction
What is good will and other intangible assets?
Copyright, patents, trademark, website domain names and good will.
Good will is Value of the company’s brand name , it’s reputation, type of customer bases, good customer relation, good employee relation and any patents or proprietary technology represents good will
When good will arises?
Good will arises when or company purchases another for premium value.It appears on the balance sheet only two companies complete merger or acquisition.
When company buys another company, anything it pays above the net value of the target’s identifiable assets becomes good will on the balance sheet.
What are investments(non current assets)?
Period of more than a year
Eg: Strategic investments made in competitors companies, key raw materials supplying companies , subsidiaries and associate companies
What is trade receivables?
It refers to the amount which the customers currently owe to a company
How non current trade receivables should be?
It should be zero or very small in percentage terms to the current trade receivables.
What is extended credit terms indicates?
It indicates that company’s product or not much in demand or company is ver lax in collecting payments from its customers
What is loan and deposits of non current assets?
It include long term loans given to employees, long term security deposits
What is current assets?
It is those assets which can be converted to cash within 12 months of the balance sheet date
How companies uses current assets?
Companies uses it to fund its day to day operations and ongoing expenses
What items current assets include?
1) Inventories
2) cash and cash equivalents
3) Investments
4) Trade receivables
5) Loans and deposits
What is inventories?
Inventories are intended to be sold by the company within a period of less than one year. To earn profits
In what categories an inventory are broken into ?
1) Raw materials
2) Work in process
3) Finished goods
What is cash and cash equivalents?
It indicates either cash or assets that are readily convertible into cash
Eg: cash in hand , cash in bank accounts, bank drafts , bank fixed deposits etc
What are Investments under current assets?
Such investments are short term in nature
Eg: Commercial paper , marketable securities, mutual fund units , short term government bonds , treasury bills etc
