How to Read or Analyse a Balance Sheet, My this article is about analysing the financials of any

company which may be private limited company or public company. Reading the financials is
the main and basic thing that every finance manager or Chartered Accountant should be
knowing about. If you are not knowing the same, then no Company would be keeping you as
an employee for a long time. This is the very basic thing every Finance person should be
knowing. I have explained this over detail in this article.

How to Read or Analyse a Balance Sheet

How to Read or Analyse a Balance Sheet

What is Balance Sheet ?

Balance Sheet is the financial Statement which is showing what the company is OWNING &
what the company is OWING. In short the balance sheet gives the companys financial
strength. Any expert reading the balance sheet would come to know about the companys
future and the past. The word Balance Sheet has been evolved because it talks about the
balancing between the Assets and the Liabilities. Assets and the Liabilities are the two parts of
the balance sheet. Assets means the things the company or particular firm or individual is
owning, on the other hand, Liabilities means the things which the company or firm or individual
is liable to pay to someone. The next part of the balance sheet is Equity, which is also known as
Net worth of the company. It indicates the companies total strength and what returns the
company are getting. Now I would start discussing each of the interior parts of the balance
sheet.

1. Shareholders Funds

This indicates the sources through which the company is financed. It mainly includes Share
capital, Reserves and surplus, etc. Share capital would include two things Equity Share capital
& Preference Share Capital.

2. Non current liabilities It are the liabilities which are to be paid of after end of the reporting
date. It mainly includes Long term Borrowings, Deferred tax liabilities, Long term provisions,
etc.

3. Long term borrowings

This are the loans which have been taken from the bank or the financial institutions which are
due not due in the current year, but in the coming years. This loans can be of two types-
secured or unsecured. Secured is the one which is secured against some asset. Unsecured is
the one which is not secured by any asset.
4.Deferred Tax Liability This is caused because of the difference in the taxable profit and the
accounting profit.

5. Long term provisions This are the provisions which are not made only for the current year
but for the coming years too. Examples of Long term provisions are Employee provident fund,
gratuity fund, etc.

6. Current Liabilities This are the liabilities which re due within 1 year from the date of
reporting. This mainly includes Trade payables, short term provisions, short term borrowings
etc.

7. Non Current Assets

Non current assets are the assets which are held for more than 1 year. Examples of Non
current assets are Fixed Assets, Non Current Investments, Long term Loans and Advances,
etc. Fixed Assets includes Tangible Assets & Intangible Assets.

8. Current Assets

This assets are the one which are used in normal routine day to day functioning of the
company. They are held for the doing the business. They are acquired to be taken with an
intention to retain up to 12 months and not more than that. Examples are Trade receivables,
Inventory, Current Investments, Cash and Cash Equivalents, etc.