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how to read balance sheet ? and at first which thing you
see in balance sheet ?
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Answer Posted / govinda_mahato05
We have to see the major component of Balance sheet contain of both sides i.e. Liabilities and Assets.
A balance sheet measures three kinds of variables: assets, liabilities and shareholder's equity.
Assets are things like factories and machinery that the company uses to create value for its customers.
Liabilities are what the company owes to outside parties, say to its vendors.
And equity is the money initially invested by shareholders plus the retained earnings over the years.
These three variables are linked by the relationship: Assets = Liabilities + Shareholder's equity.
Both assets and liabilities are further classified based on their liquidity, that is, how easily they can be converted into cash.
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The following information is extracted from the audited books of accounts of a chain of food stores for the period ended 31st December 2015. Revenue Statement (Trading and Profit and Loss Account for the year ended 31st December 2015. BWP’000 BWP’000 Sales 460 Cost of good sold (220) Gross profit 240 Wages 50 Other expenses 30 (80) Net Profit 160 Note: The purchase figure included in the cost of goods sold of P255 000. Balance Sheet as at 31st December 2015 BWP’000 BWP’000 Fixed Assets 400 Current assets: Stock 80 Debtors (trade) 120 Bank 400 ----- [600] Current liabilities: Trade creditors 300 ------ [300] 300 Net Assets 700 ==== Financed by: Share capital 600 Revenue reserves 100 ------ 700 Shareholders Funds 700 ===== Required: (a) Calculate the following accounting ratios: (i) Current ratio (ii) Acid test ratio (iii) Stock turnover (in days) (iv) Debtors turnover (in days) (v) Creditors turnover (in days) (vi) Return on capital employed (ROCE) (vii) Gross profit percentage (viii) Net profit percentage (b). Give a brief comment on the performance of the company, based on the above ratios.
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