Balance Sheets

Question 1

What does a balance sheet report

Answer 1

• The company’s assets
• Liabilities
• Shareholders equity

Snapshot of what a company owns and owes as well as the amount invested by shareholders

Question 2

How do you calculate the assets in a balance sheet

Answer 2

Assets = Liabilities + Shareholders’ equity

Question 3

What ratios can be calculated from a balance sheet

Answer 3

• Debt to equity ratio

- Acid test ratio

Question 4

How are assets set out in a balance sheet

Answer 4

Top to bottom in order of liquidity - the ease with which they can be converted into cash.

Question 5

Generally what categories of assets are listed in what order on the balance sheet

Answer 5

• Cash and cash equivalents
• Marketable securities
• Accounts receivable
• Inventory
• Prepaid expenses

Question 6

What are marketable securities

Answer 6

These are equity and debt securities for which there is a liquid market

Question 7

What are accounts receivable

Answer 7

Refers to money that customers owe the company, perhaps including an allowance for doubtful accounts since a certain proportion of customers can be expected not to pay

Question 8

What are prepaid expenses

Answer 8

Represents the value of things that have already been paid for like insurance and advertising contracts and rent

Question 9

What are some long term assets that can’t be paid off easily

Answer 9

• Long term investments
• Fixed assets
• Intangible assets

Question 10

What are examples of fixed assets

Answer 10

• Land, machinery, equipment, buildings and other durable, generally capital intensive assets

Question 11

What are examples of intangible assets

Answer 11

• Non physical assets like intellectual property and good will
• usually only listed if acquired and not developed in house

Careful as then these can be wildly over or undervalued in a balance sheet

Question 12

What are liabilities

Answer 12

Money that the company owes to outside parties

Question 13

What are some examples of liabilities

Answer 13

• Bills that the company has to pay suppliers
• Interest on bonds it has issued to creditors
• Rent
• Utilities
• Salary and a lot more

Question 14

What are current liabilities

Answer 14

Due within one year and these are listed in order of their due date

Question 15

How are current liabilities listed in the balance sheet

Answer 15

Listed in the order of their due date.

Question 16

What examples of current liabilities are there

Answer 16

• Current portion of long term debt
• Bank indebtness
• Interest payable
• Wages payable
• Customers prepayments
• Dividends payable and others
• Earned and unearned premiums
• Accounts payable

Question 17

What examples of long term liabilities are there

Answer 17

• Long term debt
• Pensoion fund liability
• Deferred tax liability

Question 18

What is pension find liability

Answer 18

The money a company is required to pay into its employees retirement accounts

Question 19

What is shareholders’ equity also known as

Answer 19

Net assets

Question 20

What is shareholders equity

Answer 20

The money attributable to a business’ owners, meaning its shareholders

Question 21

What are retained earnings

Answer 21

The net earnings a company either reinvests in the business or uses to pay off debt; the rest is distributed to shareholders in the form of dividends

Question 22

What is the treasury stock of a company

Answer 22

This is the stock that a company has repurchased - it can be sold at a later date to raise cash or reserved to repel a hostile takeover.

Question 23

What is preferred stock

Answer 23

This is listed separate from common stock under shareholders equity Not quite sure what this really is

Question 24

What is additional paid-in capital or capital surplus

Answer 24

The amount that shareholders have invested in excess of the common and preferred stock accounts which are based on the par value rather than the market value.

Question 25

What is the difference between shareholders’ equity and market cap

Answer 25

Market cap based current price of the stock

Paid in capital is the sum of the equity that has been purchased at any price