Balance Sheet Analysis

<p>Balance sheet analysis can reveal lot of important information about the company. A user of balance sheet if interpret the figures correctly than can safeguard his interests and protect himself against creative accounting practices.</p><p> </p><p>Some of the key importance of balance sheet are;</p><ul><li>It is a snapshot of company's assets liabilities & equity on a given date.</li><li>It is used by management investors bankers creditors rating agencies to understand the financial health of a company.</li><li>If compared on year-on-year basis it can give indications of company's performance over the years and also the likely trajectory of company's future growth.</li><li>It is the minimum requirement for availing credit facilities from banking system.</li><li>Users can interpret balance sheet to know the liquidity & leverage position of a company.</li><li>It is used by investors to compare with other companies and to find out stocks good for value investing.</li><li>It enables the credit providers to find proper utilization of funds by the company.</li><li>It is used by regulators to ensure regulatory compliances.</li><li>It is used by tax authorities to ascertain tax liabilities on the company.</li><li>It is used by private equity investors venture capital funds to ascertain value of company and to acquire stake at appropriate price.</li><li>It is used by top management to ascertain if the company is moving in right direction or needs some course correction.</li></ul><p>The use of balance sheet and its interpretation is different for different user group and thus clarity & accuracy of the numbers used and their classification is very important.<br>In this book author has tried to elaborate basic structure of balance sheet along with classification of assets and liabilities of a company. The book provides commonly used tools for interpretation of balance sheet information for use by bankers and investors.</p>