SG Young Investment: Understanding Financial Statements (Part 2)

The balance sheet information for the companies’ property, liabilities, and equity. Assets is exactly what the company owns and liabilities are what it owes. Equity represents the value of money that shareholders have invested in the company which is calculated by taking Assets minus Liabilities. The total amount sheet is important inside our analysis of an organization as it shows the financial position of a company. The levels of personal debt and the amount of cash the ongoing company has is seen in the total amount sheet. Let’s feel the various entries in the total amount sheet one by one. You can access an example of the balance sheet here.

This is Singtel’s balance sheet, which is the business we used to analyze the income declaration in part 1 before. The first portion of the total amount sheet list the current assets. This property will tend to be consumed or changed into cash within one business routine. This doesn’t just refer to real cash readily available that the business puts in its safe deposits. It includes money market funds, which can be liquidated quickly and short-term investments like bonds. They are investments that are less than a year.

These are payments the company desires to get that it hasn’t collected yet. In the previous part 1, we talked about on sales that was one of the entries in the income declaration. Companies can record as sales even when payment has not been received. Check if accounts receivables is rising faster than sales? If it is, it may mean that the business is allowing more customers to take up a loan to buy their products or services.

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There may be a chance that the payments will never be received in full. Inventory includes recyclables for goods, partially finished products, and finished products that have not been sold. In essence, it offers all the goods from the production to create production. This is important for manufacturing and retail companies especially. If there are many goods stored at the warehouse too, it might be difficult to market when a recession comes.

The firm is affected heavy a heavy loss because of this. We have to see what goods the business produce. For construction firms, recyclables like metal and aluminum can be kept for a long period and sold for profit in the future. However, for retail firms, the clothing that is stored in the warehouse might not have the ability to sell at a high price as the fashion trend has already changed over time. Next is the non-current property.

Sometimes these are called fixed assets. These are long-term resources, which is not likely to be converted to cash within one year or one reporting period. These are investment in long-run bonds or stocks of others. The worthiness recorded might worth less or more than the actual market value. Check out the notes to financial statements and see what investments are in this account. After knowing what exactly are the exact investments, you can determine how to view the amount recorded then. Goodwill can be used in acquisitions and mergers.

If a company will pay more than the reserve value to acquire another company, the difference is documented as goodwill. This amount can transform at times significantly. It generally does not reflect the actual physical assets in the firm. Liabilities are the actual ongoing company owes. Within a for Current liabilities are what the company is expected to pay. They are what the company owes to others which are expected to be paid within a year.

These are loans the business take which have to be repaid within a season. It could be short-term loans from the bank. It could also be long-term debt that is due within the next year. Non-Current liabilities are debts that are owed for more than a year.

There will vary entries inside but the most crucial one is long term debt. They are money the company has borrowed usually by issuing bonds or sometimes from a bank or investment company. Additionally it is called common equity, as recorded in the total amount sheet. This is the total assets minus the total liabilities. It represents part of the ongoing company owned by shareholders. This is the most crucial in the stockholder’s equity entry.

This is the amount of capital the company has generated over its life time, minus dividends and stock buybacks. Each year the business makes an income and doesn’t pay everything out in dividends, maintained earnings increase. If an ongoing company has lost money overtime, maintained earnings can turn renamed and negative as the accumulated deficit on the total amount sheet.