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Hi, dear vijaykulkarni9,

As excerpted from Successful Manager's Handbook, the balance sheet is effectively a listing of everything a business owns less all that it owes. Learn how this key financial statement is structured and how the figures work to provide you with a picture of the total net assets of an organization.

The balance sheet lists assets and liabilities comparing both previous and current accounting periods, grouping them into meaningful subtotals and totals that explain what is happening financially within an organization.

The balance sheet shows the present financial performance of a business. It can be compared to a snapshot of an entire organization taken at the close of business on a specific day, and it is therefore correct only at that one precise moment. The snapshot shows everything that the business owns - its assets - and all that it owes - its liabilities. Balance sheets are generally drawn up each year at the same time as the profit and loss account. But bear in mind that pictures can be flattering. If, for example, a fashion retailer's balance sheet is done after the summer sales (when there is plenty of cash in the bank and stocks are low), it will look particularly good.

Questions to ask yourself:

1. Does the year-end fit the annual nature of the business?

2. Would a different accounting date alter the balance sheet?

3. Have there been major changes in any sums year-on-year?

4. Have assets shown at current value been estimated fairly?

It is important to look at, understand, and act upon what the balance sheet tells you. In this way you will be able to make better-quality financial decision. Remember to think of the balance sheet as an aerial photograph, understand the importance of how liabilities and assets are grouped, appreciate that balance sheets show cost and not value.

B. regards,

John

A quick tool of finding the company's health through balance sheet is Ratio Analysis. Go through the following powerpoint presentation and you will get a better insight:
http://www.iibf.org.in/UPLOADS/caiibfmramodule_c.ppt

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