Balance Sheet with Financial Ratio
A balance sheet is a useful tool to show the snapshot of a business at a specific point in time. The balance sheet is not prepared for the internal users but it has a wide range of stakeholders looking upon it and based their decisions on it.
Balance sheets are used as a part of the financial analysis and financial reporting. A balance sheet is a combination of the assets, liabilities, and equity, which covers everything the business, has in it. A balance sheet can help companies to evaluate, plan and control the operations of the business and management itself basis the decisions to expand by analyzing the balance sheet.
Investors, creditors, banks, tax agents, government and the employees themselves are the biggest stakeholders and interested parties in the balance sheet. Stakeholders within the company have a good know-how as to how the company runs, earns and manages their operations. As for the external stakeholders, it is hard for them to get an insight into the company. Balance sheet acts as the best tool for them.
A balance sheet can help companies to evaluate, plan and control the operations of the business and management itself basis the decisions to expand by analyzing the statement of financial position.
A balance sheet at a glance has the potential to represent various information i.e. it shows the trend analysis for every area of the business like the increase or decrease in the liabilities.
Analyzing the performance and position of a company is not an easy task. Financial statements are a combination of various financial tools which makes it easy to analyze the company performance. The successful running of the company requires a continuous examination of the operations and management. Financial ratios can be a good measure to study a company.
Multiple ratios can determine the health of the company and the most important of them being the liquidity ratio. The liquidity ratio can be calculated by picking up figures from the balance sheet. Liquidity ratio is a good measure to see if the company is capable enough of paying the liabilities in the short term.
Sales and asset ratio can also be a good measure to see the efficiency of the company. This ratio shows how well the company is utilizing its assets to earn returns. Profitability ratios such as return on capital employed and return on equity ratio can be a good way to see the amount of profit a company is earning using its assets.