Livestock Economics, Marketing and Business Management

CHARACTERISTICS OF BALANCE SHEET

• Balance sheet records values at a specific point of time.
• It refers 3 essential components
  • Assets
  • Liabilities and
  • Net worth.
• Only items owned or owed are included, e.g. Land rented from others is not entered as an asset.

Assets	Amount	Liabilities	Amount
Fixed		Long term
Working		Medium term
Current		Current
			Total Liabilities
Net Worth = Total Assets – Total Liabilities

• The most liquid current asset is cash in hand and the least liquid current asset is inventory.
• The most liquid current liability is money at call and the least liquid liability is long term loans.
• The total capital invested in the business is worked out by the addition of total loans and net worth.

Capital invested = Total loans + Net worth

• The gross working capital is the total current assets.
• Net working capital is

Total current assets – Total current liabilities

• Negative working capital is

Current liabilities - Current assets

• The important test ratios that can be worked out from the balance sheet are as follows
  • Net Capital Ratios = Total assets / Total liabilities
  • Percent of equity = {Equity / Total assets}*100
  • Current ratio = Total current assets ./ Total current liabilities
  • Quick ratio or = Quick assets/ Total current liabilities
• Acid test ratio

(Quick assets = Total current assets – Inventory)

• 5. Debt – Equity ratio or Leverage ratio = Total debts / Equity