The first 5 numbers to look at in a balance sheet
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The document outlines key numbers to examine in a balance sheet, emphasizing the importance of asset solvency and the relationship between assets, equity, and liabilities. It poses critical questions to analyze changes in total assets, current assets, equity, and both non-current and current liabilities. The document encourages a comprehensive review of financial statements to assess business health and invites further exploration of related content through the Business Banking Coach website.
The first 5 numbers to look at in a balance sheet
- 1. The first 5 numbers to look at in a balance sheet from businessbankingcoach.com in association with
- 2. Here’s the scenario: the client has just given you the financial statements for the business and you have to say something quickly……
- 3. …..here’s what to look at in the balance sheet with some questions to ask.
- 4. Remember the accounting equation....
- 5. Remember the accounting equation.... ....it’s the balance sheet Assets = Equity plus Liabilities
- 6. But before you start looking at the numbers in detail there’s one thing you must check first;
- 7. Does the total of the assets exceed the total of the liabilities (debts)?
- 8. If so, the business is solvent so you can carry on.
- 9. So, these are the first five numbers to look at in the balance sheet…..
- 10. Total assets
- 11. Has the number gone up from the previous year or gone down?
- 12. What changed on the other side of the equation? More or less equity? More or less liabilities? Has the number gone up from the previous year or gone down?
- 13. What changed on the other side of the equation? More or less equity? More or less liabilities? If non-current assets reduced was it due to depreciation or were assets disposed of? Were they productive assets? Has the number gone up from the previous year or gone down?
- 14. Current assets
- 15. Has the number gone up from the previous year or gone down?
- 16. Has the number changed because turnover changed? If so, in the same proportion? Has the number gone up from the previous year or gone down?
- 17. Has the number changed because turnover changed? If so, in the same proportion? Are stock (inventory) and trade debtors (accounts receivable) equally affected by the change? Has the number gone up from the previous year or gone down?
- 18. Equity
- 19. Have profits been retained or have dividends been paid to shareholders?
- 20. Has additional equity been invested by the shareholders? If so, same shareholders as previously? Have profits been retained or have dividends been paid to shareholders?
- 21. Have profits been retained or have dividends been paid to shareholders? Has additional equity been invested by the shareholders? If so, same shareholders as previously? Have any other reserves been created that weren’t there before?
- 23. Have non-current liabilities increased or decreased? Is there a corresponding change in the non-current assets?
- 24. Is there new or increased interest-bearing debt included in non-current liabilities? If so, what collateral has been given? Have non-current liabilities increased or decreased? Is there a corresponding change in the non-current assets?
- 26. Have current liabilities increased or decreased? Is there a corresponding change in the current assets?
- 27. How soon must the current liabilities be settled? Have current liabilities increased or decreased? Is there a corresponding change in the current assets?
- 28. How soon must the current liabilities be settled? Is there new or increased interest-bearing debt included in current liabilities? If so, what collateral has been given? Have current liabilities increased or decreased? Is there a corresponding change in the current assets?
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