Purpose of a financial balance sheet analysis
The main purpose of a financial balance sheet analysis is to determine if a company is financially strong and economically efficient in the way it conducts business. There are a number of questions that need to be answered to establish if that is the case including:
- Does the company have the ability to pay bills coming due?
- Does the company have enough cash to survive?
- How much long-term debt does the company have?
- How much inventory is being carried?
A company often needs this type of information for investors or to borrow money from a bank. Balance sheet analysis can be used to get the answers for these and other questions.
Elements of a financial balance sheet analysis
The analysis of a company’s financial balance sheet will include the following elements:
- Cash Position: Amount of cash and short-term investments in relationship to liabilities. A company’s cash position lets you know if it has enough cash to survive.
- Working Capital: Indicates the amount of capital a company has available to work with. Current Assets – Current Liabilities = Working Capital
- Working Capital Per Dollar of Sales: Amount of capital a company has available to work with for every dollar of sales that it has. Working Capital/Total revenue = Working Capital Per Dollar of Sales
- Current Ratio: Helps to answer the question of a companies ability to pay bills coming due. Current Assets/Current Liabilities= Current Ratio
- Quick Ratio: Similar to Current Ratio but more accurate as it considers inventories held (Current Assets – Inventories) / Current Liabilities = Quick Ratio
- Receivable Turn: Total Revenue/Average Receivables = Receivable Turn
- Debt to Equity Ratio: Helps to identify a company’s financial strength by determining how much of a company’s expansion is financed by debt. Total Liabilities/Shareholder Equity = Debt to Equity Ratio
If you don’t know how to analyze a balance sheet, you can use our tips. These are some of the elements used in a financial balance sheet analysis but not all. If you have any difficulty with performing a financial balance sheet analysis, our company analysis service provides you an alternative.
About our company analysis service
We have put together a team of company analysts that is among the best in the field to help with accounting homework. Their knowledge and experience allows us to offer company analysis for any type of business in any industry. The analysis they perform will be customized to your specific requirements. Additional benefits of our service include:
- Guarantees on every analysis we provide
- Affordable rates even for those on a tight budget
- Fast and easy online order and payment process
- Customer support 24/7