Interpreting Balance Sheets - Part -II



Assets

Assets = What business owns

Like liabilities, assets are divided into Current and Non-current. Current and Non-current assets are defined the same as liabilities.


Current Assets

Operating Cycle = time between acquisition of assets for processing and their realisation in cash or cash equivalents

Trade receivables within operating cycle = Current Assets

Cash and cash equivalents = Current Assets

Inventory = Current Assets


Non-Current Assets

Anything which is not intended to cash within the operating cycle or 12 months is called Non-Current Assets

Fixed assets - Asset held by the company not for purpose of sale but for earning

Fixed assets can be tangible and intangible assets

Tangible - anything which has physical existence - e.g building, plant, vehicles, machinery etc

Intangible - don't have physical existence - e.g License,patents,trademark,goodwill,software etc

Everything has a lifetime, therefore we need to set aside an amount to renew or repurchase assets. When you set aside amount for tangible assets - Depreciation and when you do for intangible assets - Amortization

Capital WIP - Like building in the construction phase etc

Intangible assets under development - Research and development


Non-Current Investments

These are investments not for resell but to retain them. This generates a return on Investment.

These include other company's shares, bonds, government securities, mutual funds, ETF etc.


Loans and Advances

When a company lends loans to other companies and it is realized more than 12 months. It is called Loans and advances.


I think these articles give you some primer to Annual financial statements.If you want to dip deeper , practice reading financial statements in real companies.

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Disclaimer: This article is me speaking to me through this blog! Short Intro: If you want to innovate in a particular field, you need to understand how things work in the first place. Innovation is a