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IBDP Balance Sheet

IBDP

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Vedant Narula
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14 views3 pages

IBDP Balance Sheet

IBDP

Uploaded by

Vedant Narula
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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1.

Assets

Assets are resources owned by the company that are expected to bring future economic benefits. They are typically
categorized into current and non-current (or long-term) assets.

Current Assets:

 Cash and Cash Equivalents: Cash on hand and in bank accounts, plus short-term investments that can be quickly
converted into cash. High cash levels indicate good liquidity.
 Accounts Receivable: Money owed to the company by customers for goods or services delivered on credit. Check
for the allowance for doubtful accounts, which indicates expected non-collection.
 Inventory: Raw materials, work-in-progress, and finished goods available for sale. High inventory levels might
indicate overstocking or poor sales.
 Prepaid Expenses: Payments made in advance for goods or services to be received in the future, such as insurance
or rent.
 Marketable Securities: Short-term investments that can be easily converted into cash.

Non-Current Assets:

 Property, Plant, and Equipment (PP&E): Tangible fixed assets like land, buildings, machinery, and equipment.
Depreciation is subtracted here to reflect the wear and tear or usage of these assets over time.
 Intangible Assets: Non-physical assets such as patents, trademarks, goodwill, and software. Goodwill arises from
acquisitions and represents the excess of purchase price over the fair value of net identifiable assets.
 Long-Term Investments: Investments that the company expects to hold for more than one year.
 Deferred Tax Assets: Taxes recoverable in future periods due to differences between accounting and tax rules.

2. Liabilities

Liabilities represent obligations that the company must settle in the future. They are categorized into current and non-current
liabilities.

Current Liabilities:

 Accounts Payable: Amounts the company owes to suppliers for goods or services received on credit.
 Short-Term Debt: Loans and other borrowings that are due within one year.
 Accrued Expenses: Expenses that have been incurred but not yet paid, such as wages, interest, and utilities.
 Deferred Revenue: Money received in advance for goods or services that have yet to be delivered or performed.
 Current Portion of Long-Term Debt: The portion of long-term debt that is due within the next year.

Non-Current Liabilities:

 Long-Term Debt: Loans and financial obligations that are due after one year.
 Deferred Tax Liabilities: Taxes payable in future periods due to differences between accounting and tax rules.
 Pension Liabilities: Obligations to pay pensions and other retirement benefits to employees.
 Long-Term Lease Obligations: Commitments to make future lease payments.

3. Equity

Equity (also known as shareholders' equity or owner's equity) represents the residual interest in the assets of the company
after deducting liabilities. It includes different sub-components:

 Common Stock: The par value of shares issued to shareholders.


 Preferred Stock: Equity that gives holders certain preferences over common shareholders, often in dividends and
liquidation.
 Additional Paid-In Capital: The excess amount paid by investors over the par value of stock.
 Retained Earnings: Cumulative earnings retained in the business after paying dividends. Indicates reinvested
earnings to fund growth.
 Treasury Stock: Shares that the company has repurchased. It's deducted from equity because it represents the
reverse of issuing shares.
 Other Comprehensive Income: Includes gains and losses not included in net income, such as foreign currency
translation adjustments and unrealized gains or losses on investments.
Step 1: Understand the Structure
A balance sheet is typically divided into three main sections:

 Assets: What the company owns


 Liabilities: What the company owes
 Equity: The residual interest in the company’s assets after deducting liabilities

Step 2: Analyse the Assets Section


1. Current Assets:

 Cash and Cash Equivalents: Check the liquidity and short-term financial health.
 Accounts Receivable: Review the amount due from customers. High receivables might indicate
credit issues but also potential sales growth.
 Inventory: Understand the level of goods available for sale. Excessive inventory might indicate
overstocking or slow sales.
 Prepaid Expenses: Look for prepayments that will benefit future periods.

2. Non-Current Assets:

 Property, Plant, and Equipment (PP&E): Check the value and depreciation of tangible assets. This
can indicate the investment in operational infrastructure.
 Intangible Assets: Includes patents, trademarks, and goodwill. Assess the value and potential impact
on future earnings.
 Long-term Investments: Review for strategic assets that may offer future gains.

Step 3: Analyze the Liabilities Section


1. Current Liabilities:

 Accounts Payable: High payables might indicate liquidity issues but also efficient use of credit.
 Short-term Debt: Understand the company's short-term borrowing and repayment obligations.
 Accrued Expenses: Review for expenses incurred but not yet paid.
 Deferred Revenue: Look for payments received for goods or services not yet delivered. This
indicates future obligations.

2. Non-Current Liabilities:

 Long-term Debt: Assess long-term borrowing and its implications for future cash flows and interest
payments.
 Deferred Tax Liabilities: Understand tax obligations that will be settled in the future.
 Pension and Post-retirement Benefits: Review commitments to employee benefits.

Step 4: Analyse the Equity Section


 Common Stock and Additional Paid-in Capital: Review the amount of capital raised from
shareholders.
 Retained Earnings: Check the accumulated profits reinvested in the business. Consistent growth can
signal good financial health.
 Treasury Stock: Review shares repurchased by the company. This can affect total equity.
 Other Comprehensive Income: Look for gains and losses not included in net income, such as
foreign currency translation adjustments.

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