Analyzing Balance Sheet

Question 1

What is Equity share capital?

Answer 1

It is money raised by the company by issues shares to public

Question 2

What is the purpose of issuing bonus shares?

Answer 2

To increase liquidity in the stock

Question 3

What is securities premium account?

Answer 3

It is a form of capital reserves which arise from the issue of share at premium to its face value

Question 4

What is contingency reserves?

Answer 4

It is the portion of surplus or retained earnings that are reserves for specific and general contingency

Question 5

What is retained Earnings?

Answer 5

It refers to the accumulated profits that the company has retained over the years that are not yet distributed to the shareholders

Question 6

For what securities premium account, contingency reserves and retained earnings are used?

Answer 6

Company uses these funds to purchase new assets, to replace existing ones , for expansion and for working capital requirements

Question 7

What is non current liabilities?

Answer 7

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

Question 8

What are the heads(things)present in non current liabilities?

Answer 8

1) Long term Financial Liabilities (borrowings)
2) Trade and other non current payables
3) Non current provisions
4) Deferred tax liabilities

Question 9

What is long term financial liabilities?

Answer 9

It represents the amount of money that the company has borrowed through various sources

Question 10

How you interpret Long term Financial liabilities?

Answer 10

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

Question 11

What is non current trade payables?

Answer 11

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

Question 12

What is non current provisions?

Answer 12

It includes money set aside for employee benefits such as gratuity; leave encashment, provident fund etc

Question 13

What is differed tax payments?

Answer 13

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)

Question 14

What is current liabilities?

Answer 14

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

Question 15

What does current liabilities include?

Answer 15

1) Short term Financial Liabilities (borrowings)
2) Trade and other current payables
3) Current provisions

Question 16

What are assets made off?

Answer 16

1) Non current assets
2) Current Assets

Question 17

What are the non current assets are made off?

Answer 17

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

Question 18

What is Tangible assets?

Answer 18

The assets which are normally meant for resale
Eg: Land , Buildings, furnitures ,vehicles , manufacturing equipment and office equipment, factory , warehouse , electronics , computers, shops , airplanes

Question 19

What is capital work in progress?

Answer 19

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

Question 20

What is good will and other intangible assets?

Answer 20

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

Question 21

When good will arises?

Answer 21

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.

Question 22

What are investments(non current assets)?

Answer 22

Period of more than a year
Eg: Strategic investments made in competitors companies, key raw materials supplying companies , subsidiaries and associate companies

Question 23

What is trade receivables?

Answer 23

It refers to the amount which the customers currently owe to a company

Question 24

How non current trade receivables should be?

Answer 24

It should be zero or very small in percentage terms to the current trade receivables.

Question 25

What is extended credit terms indicates?

Answer 25

It indicates that company’s product or not much in demand or company is ver lax in collecting payments from its customers

Question 26

What is loan and deposits of non current assets?

Answer 26

It include long term loans given to employees, long term security deposits

Question 27

What is current assets?

Answer 27

It is those assets which can be converted to cash within 12 months of the balance sheet date

Question 28

How companies uses current assets?

Answer 28

Companies uses it to fund its day to day operations and ongoing expenses

Question 29

What items current assets include?

Answer 29

1) Inventories
2) cash and cash equivalents
3) Investments
4) Trade receivables
5) Loans and deposits

Question 30

What is inventories?

Answer 30

Inventories are intended to be sold by the company within a period of less than one year. To earn profits

Question 31

In what categories an inventory are broken into ?

Answer 31

1) Raw materials
2) Work in process
3) Finished goods

Question 32

What is cash and cash equivalents?

Answer 32

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

Question 33

What are Investments under current assets?

Answer 33

Such investments are short term in nature
Eg: Commercial paper , marketable securities, mutual fund units , short term government bonds , treasury bills etc