Balance sheet analysis for a business
When we start a business, it is our responsibility to maintain the balance sheet and calculate the profits and losses, so that we can learn what has to be improved yet to get more profits. The balance sheet analysis is a must for every business whether it may be a small or large enterprise. It is also useful to look after the incomes and the expenses we made in the business. Let us discuss the balance sheet analysis briefly in this article and hope it will be useful for the new businessmen.
A balance sheet is the main thing which will state the financial status and the condition of a company. It is divided into two separations.
- Current assets
- Fixed assets
Current assets can be converted into cash and vice versa and it includes the bills and inventories, cash receivables and more.
Fixed assets are the ones which cannot be converted into cash again and it includes all the things like land and buildings, business equipment, etc…
Advantages of the balance sheet:
There are many advantages of the balance sheet in a business and they are listed as follows.
- Keeps balanced:
The balance sheet will give us a balanced information about the financial condition of the companies and also it will give us the balance sheet amount of the previous years and it will be useful for comparing the trends.
- Measuring ratios:
The financial managers in the company will take some information from the analysis of balance sheet and use that information to find out some important ratios of profits and losses in a business. These ratios will determine the financial strength of the company or business.
Disadvantages of the balance sheet:
Though there are many advantages, there are some limitations also in the balance sheet and those disadvantages are listed as follows.
- Value of the long-term assets:
The long-term assets will be in the company for more than one year and the disadvantage is mainly because of these long-term assets because the long-term assets will generally have the value when it was bought and it does not have the current asset value. This will make a wrong value in the balance sheet and will make a mistake in the wealth of the business.
- Assets missing:
The balance sheet will never calculate the assets which were not used for any transactions though they are much valuable. It will calculate only the value of assets which are used for some transactions.