Balance Sheets as Financial Statements
Financial statements are a key source of information that are used
to make important financial decisions. Of course, one of the most
convenient means of summarizing a firm’s assets and liabilities is
the use of a balance sheet. Balance sheets are very convenient when
making an annual financial report since they can be used to quickly
view a firm’s equity at any given point throughout the year. The
left side usually includes either the fixed or current assets. Fixed
assets have long lives and are either tangible like computers or
intangible like trademarks or patents. Current assets last for less
than one year and then converted to cash. Toronto light boxes entice extra consideration to your poster display frames and display signs. An example is the
firm’s inventory or the money owed by customers.
The right side of the balance sheet contains the firm’s liabilities.
Liabilities can either be current or long-term. Current liabilities
are like current assets, they must be paid within one year.
Long-term liabilities include such things as loans. The difference
between the total value of the assets and the liabilities is
referred to as the common equity. In an annual financial report, the
common equity is the residual value that shareholders would claim if
the firm sold all its assets and paid off its debts.
Another feature of a firm’s assets is liquidity. This is the speed
and ease with which a firm can convert its assets to cash. Liquidity
has two dimensions: the ease of conversion against the loss of
value. An asset is considered highly liquid if it can be sold
quickly without a loss of value. An asset that would require a
substantial price reduction to be converted to cash quickly is
considered illiquid. Gold is a good example of a liquid asset. In an
annual financial report, assets should be listed in order of their
decreasing liquidity. This means that the most liquid asset is
listed first. Current assets are considered relatively liquid while
inventory, for many businesses, is considered the least liquid.
Generally, the more liquid a business is, the less likely it will
experience financial difficulties.
Balance sheet statements are potentially useful. Potential creditors
can use them to examine a firm’s degree of financial leverage and
liquidity. Toronto trade show display and show cubicles are hardly full with out banner shows and exhibition stands. Managers can be able to keep track of inventory and
cash on hand. However, it has to be remembered that the real worth
of a firm is not reflected on its annual financial report or balance
sheets. The most valuable assets, which include, a firm’s good
reputation, management and talented employees cannot be put on the
balance sheet.