TITLE : HOW TO READ AND UNDERSTAND A BALANCE SHEET.

 
TABLE OF CONTENTS
 
Introducing The Balance Sheet by Robert Gottliebsen
 
1. Concepts Of Balance Sheet Preparation			1
- The Role of Accounting
- The Accounting Equation
- Accounting in Practice
- Income and Expenditure Concept
 
2. Accounting Principles Relevant to Balance Sheets		7		
- Accounting Entity
- Historical Record
- Monetary Convention
- Conservatism
- Consistency
- Disclosure
- Materiality
- Accounting Standards
 
3. The Conventional Basis for Preparation of Revenue Statements and 	
   Balance Sheets				11
- The Role of the Journal
- The Role of the Ledger
- The Trial Balance
- The Books of Account
- The Profit and Loss Account
- The Balance Sheet
- A Typical Set of Accounts - Best Industry Limited
 
4. The Effects of Inflation on Accounting Statements		27
- Effect on Assets and Liabilities
- Effect on Incomes and Expcnditures
- Effect on Financial Ratios and Comparisons
 
5. Objectives of Financial Ratio Analysis			31
- Profitability Ratios
- LiquidityRatios
- Efficiency Ratios
- Capital Structure Ratios
 
6. Objectives of the Revenue Statement			37
- Profit Assessment
- Capital and Income, Assets and Liabilities
- Incorne and Cash Receipts
- Expenditure and Cash Payments
- Dividend Assessment
- Taxation Assessment
- Companies Act Requirements
- Performance Measurement
 
7. Revenue Statement Presentation			45
- Account Format
- Statement Format
- A Case Study in Presentation - Best Industry Limited
 
8. Revenue Statement Analysis			53
- Gross Sales
- Returns and Allowances
- Net Sales
- Cost of Goods Sold
- Selling and Distribution Expense
- General and Administrative Expense
- inance Expense
- Non-operating Items
- Income Tax
- Net Profit
 
9. Revenue Statement Ratios Analysis - Case Study			61
- Gross Profit Margin
- Stock Turnover
- Selling and Distribution
- General and Administrative
- Finance
- Non-operating
- Taxation
- Net Profit after Tax
 
10. Balance Sheet Structure				69
- Non Current (Fixed) Asscts
- Investments
- Current Assets
- Intangibles
- Long Term Liabilities
- Current Liabilities
- Share Capital/Proprietors Funds/Accumulated Fund
- Reserves
- Contingent Assets and Liabilities
- Case Study - Best Industry Limited
 
11. Balance Sheet Ratio Analysis - Case Study			77
- Shareholder's Funds to External Liabilities
- Capital Gearing Ratio
- Shareholder's Funds to Total Funds
- Fixed Assets to Total Assets
- Current Assets to Total Assets
- Current Assets to Current Liabilities
- Liquid Ratio
- Percentage Format
- Adjustments for Intangibles, Hidden Assets and Debts
 
12. Statement of Source and Application of Funds			87
- Analysing Funds Movemcnts
- Sources of Funds Flows
- Case Study - AB Company Limited
- Working Capital Assessment
 
13. Sources of Funds - Case Studies				97
- Analysis of Appropriate Ratios:
- A Retailer Company
- A Finance Company
- A Mining Company
- Summary
 
14. Applications of Funds - Case Studies			105
- Analysis of Appropriate Ratios:
- A Retailer Company
- A Finance Company
- A Mining Company
- Summary
 
15. Working Capital Assessment and Analysis			113
- Current Ratio
- Liquid Ratio
- Stock Turnover Rate
- Debtor Collection Rate
- Creditors Payment Rate
 
16. Consolidated Statement Analysis				119
- Consolidated ProGt and Loss Statement
- Consolidated Balance Sheet
- Consolidated Profit and Loss Appropriation
- Subsiduary Companies
- Consolidated Statement Preparation
- Parent Company Financial Statements
- Limitations of Consolidated Statements
- Intercorporate Methods Of Valuation
 
17. Equity Accounting in Company Accounts			127
- Case Study - Adams Limited
- Case 1
- Case 2
- Case 3
 
18. Analysis of Reserves and Provisions				133	
- Revenue Reserves
- Capital Reserves
- Inner Reserves
- Secret Reserves
- Reserve Fund
- Provision for Depreciation
- Provision for Doubtful Debts
- Provision for Taxation
- Provision for Dividend
 
19. Analysis of Attached Reports					141	
- The Auditor's Report
- The Director's Report
- The Chairman's Report
 
20. Analysis of Dividend Policy						147
- Need for Finance
- Cash Flow
- Stability of Earnings
- Rate of Expansion
- Access to Capital Markets
- Repayment of Borrowcd Funds
- Profit Rate
 
21. Analysis of Cash Flow							155
- The Structure of the Cash Budget
- Estimation of Cash Payments
- Estimation of Cash Receipls
- Estimation of Debtors Collections
- Purchases Budget
- Operating Expcnse Budget
- Reconciliation of Cash and Revenue Statements
 
22. Analysis qf Product Profitability				173	
- The Multi Product Situation
- Pricing Analysis
- Cost/Volume Relationships
- Break-even Analysis
- Contribution Assessment
- Product Mix Analysis
 
23. Analysis of the Effects of Taxation				195
- Depreciation Deductions
- Other Deductions
- Income and Capital
- Imputation of Company Tax
- Capital Gains Tax
- Fringe BeneElts Tax
 
24. Analysis of Asset Revaluation Bases				207	
- Original Cost
- Present Money Value
- Selling Price
- Replacement Price
- Difficulties of Revaluation
- Recognising Revaluation
 
25. Valuation of Intangibles						213
- Goodwill
- Patents
- Trademarks
- Formation Expenses
- Share Issue Costs
- Debenture Issue Costs
- Research and Developmcnt Expense
 
26. Valuation of Shares								219
- Estimating Future ProEIt Trcnds
- Assessing Required Yield
- Assessing the Capital Value of the Business
- Assessing Earning Capacity
- Assessing Asset Backing
 
27. Adjustmants for the Etlect of Inflation			229	
- Income Estimation Methods
- Fixed Assets and Dcpreciation Adjustments
- Current Assets Adjustments
- Current Liabilities Adjustments
- Inventory Adjustments
- Debtors and Creditors Adjustments
 
28. Analysis of Capital Expenditure Decisions		249	
- Assessing the Appropriatc Intcrcst Rate
- Appraisal Criteria
- Pay Back Mcthod
- DCF Mcthod
 
29. Analysis of Management Performance				259
- Working Capital Assessment
- Stock Turnover Rate Assessment
- Debtor Turnovcr Rate Assessment
- Net Profit to Sales Assessment
- Return on Capital Assessment
 
30. Analysis of Business Problems					265	
- Case Study of Companics A (Industrial), B (Retailer)
- Undercapitalisation
- Overcapitalisation
 
31. Assessing a Company's Future					271
- Assessment of the Stage of thc Company Life Cycle
- Assessment of Managemcnt Potential
- Asscssment of thc Takeover Potential