VERTICAL BALANCE SHEET
- 1. Vertical form of Balance Sheet and Income Statement
- 2. Why do we study Vertical Form.. • Horizontal Form caters more to the owner of the firm rather than the lenders or potential investors. • It is feasible and makes it easier to understand the financial situation at a glance. • Vertical form is allowed in case of Companies. • Classifies expenses in different subheads.
- 3. Income Statement An Income Statement tracks the income and expenses of a company over a certain period of time to create a picture of its profitability. Income statements typically categorize expenses and incomes broadly to make it easier to understand the financial statement of the firm.
- 4. • An Operating Expense is an expense a business incurs through its normal business operations. Operating expenses include rent, equipment, inventory costs marketing, payroll, insurance etc • Non-operating income is gains or losses from sources not related to the typical activities of the business .Non-operating income can include gains or losses from investments, property or asset sales etc. Some important definitions related to Income Statement:
- 5. • Non-operating expenses are the expenses incurred by a business which are outside of its main or central operations. Non- operating expenses are also described as incidental . • Retained earnings refer to the net earnings not paid out as dividends, but retained by the company to be reinvested in its core business, or to pay debt.
- 6. Format of Income Statement
- 7. Example: Q: Rearrange the following in the form suitable for financial analysis.
- 8. No. Particular Amount 1. 2. 3. 4. 5. 6. 7. 8. 9. Sales Less: Cost of goods sold Raw material consumed Consumables Direct Labor Other Direct Expenses Gross Profit (1-2) Less: Operating Expenses Administrative Expenses Selling Expenses Depreciation Profit Before Interest and Tax(3-4) Less: Interest Net profit before Tax Less : Income Tax@50% Net Profit After Tax 7800 800 750 480 1200 260 700 16000 9830 6170 2160 4010 1440 2570 1285 1285 Income Statement for the year ending on….
- 9. Vertical Balance Sheet A statement of the assets, liabilities, and capital of a business or other organization at a particular point in time, detailing the balance of income and expenditure over the preceding period.
- 10. Some important definitions related to Balance Sheet • Owner’s Fund: This represents the capital theoretically available for distribution to shareholders. Owner's Fund, also called owner's equity, is the account that shows the owners' stake in the business. • Tangible Assets: Tangible assets include both fixed assets, such as machinery, buildings and land, and current assets, such as inventory. Any Asset which can be seen and touched is termed as tangible asset.
- 11. • Nonphysical assets , which cannot be touched, such as patents, trademarks, copyrights, goodwill and brand recognition are all examples of Intangible assets. • Long term Investments: A long-term investment is an account on the asset side of a company's balance sheet that represents the company's investments, including stocks, bonds, real estate that it intends to hold for more than a year. • Loan Funds: All the funds that have been procured from external sources.
- 12. Format of Vertical Balance sheet
- 13. Example: Q: Rearrange the following in the form suitable for financial analysis.
- 14. No. Particular Amount 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. Share Capital Reserve and Surplus Own fund(1+2) Long term loans Short term loans Loan funds(4+5) Total funds Available(3+6) Fixed Assets Investment Current Assets Inventories Receivables Cash and Bank Less: current liabilities Trade creditors 5000 1500 12000 1500 6000 3700 100 9800 3350 6500 13500 20000 14000 400
- 15. No. Particular Amount 12. 13. Provisions Other Working capital (10-11) Total Funds Employed 650 200 4200 5600 20000
- 16. Thank you