What Is a Balance Sheet Analysis?
Balance sheet analysis is a combination of quantitative analysis and qualitative analysis to comprehensively analyze the impact of various factors on the balance sheet, so that readers of the balance sheet can obtain the necessary information. The analysis of changes in the balance sheet account in the current period has been completed by the statement of changes in financial position. The analysis of the balance sheet focuses on comparing some calculated relative ratios or relative indicators. (1) Analysis of liquidity of current assets. The analysis mainly uses relative ratios and relative indicators such as accounts receivable turnover rate and inventory turnover rate. (2) Analysis of short-term debt repayment ability. The main use of current ratios, quick ratios, cash ratios (the sum of cash equivalents plus marketable securities and current liabilities), working capital turnover ratio and other relative ratios for analysis. (3) Long-term solvency analysis. According to the balance sheet items, relative indicators such as the ratio of fixed assets to equity, the ratio of current liabilities to capital, and the ratio of debt to net tangible assets can be used to reflect long-term solvency. [1]
Balance sheet analysis
- purpose
- 1. Reveal the connotation of balance sheet and related items
- 2. Understand
- When analyzing the balance sheet elements, we should first pay attention to the analysis of asset elements, including:
Balance sheet analysis of current assets
- Analyze the company's cash, various deposits, short-term investments, various receivables and payables, and inventory.
- Balance sheet
Balance sheet analysis for long-term investments
- Analyze investments for more than one year, such as company holdings and diversified operations. The increase in long-term investment indicates that the company's growth prospects are promising.
Balance sheet analysis of fixed assets
- This is an analysis of physical assets. For example, State Street Investment said that the numbers of various fixed assets listed in the balance sheet only indicate that under the condition of continuing operations, the amount of each fixed asset has not been depreciated and depleted and is expected to be recovered in the future. Therefore, we Special attention should be paid to whether the depreciation and loss are reasonable will directly affect the accuracy of the balance sheet, income statement and various other statements. Obviously, less depreciation will increase current profits. Increasing depreciation will reduce the current profit, and some companies often lay aside for this.
Balance sheet analysis of intangible assets
- Mainly analyze trademark rights, copyrights, land use rights, non-patented technology, goodwill, patent rights, etc. Goodwill and other intangible assets that are not identified are generally not accounted for, unless goodwill is formed at the time of purchase or merger. After obtaining intangible assets, they shall be registered and amortized within the prescribed period.
- Secondly, we must analyze the elements of liabilities, including two aspects:
- Liability elements
Balance sheet analysis of current liabilities
- All current liabilities should be recorded according to the actual amount. The key to the analysis is to avoid omissions. All liabilities should be reflected in the balance sheet.
Balance sheet analysis of long-term liabilities
- Including long-term loans, bonds payable, long-term payables, etc. Due to the different forms of long-term debt, we should pay attention to analyzing and understanding the situation of the company's creditors.
- Finally, the analysis of shareholders' equity includes four aspects: equity, capital reserve, surplus reserve and undistributed profits. Analysis of shareholders' equity is mainly to understand the different forms of capital invested in shareholders' equity and the structure of equity, and to understand the priority settlement order of each element in shareholders' equity. When looking at the balance sheet, it must be combined with the income statement, which mainly involves capital profit and inventory turnover rate. The former is an indicator of profitability and the latter is an indicator of operating capacity. [5]