How to read balance sheet format | with detail explanation
Come on guys, in this article, we will understand what is the balance sheet. In this modern time, people are getting very attracted to the share market because they are getting the right idea of the share market. And now they need to learn "fundamental analysis". And the first phase of it starts from the balance sheet.
Before starting the balance sheet, carefully check
(recommendation of best book is the last line of this article)
the image is given below because now the concept we are going to understand will show you in this format while analyzing it.
The balance sheet work is to tell the financial position of the business. And it is very helpful when we think on behalf of investing in a company. Or are you ever going to buy a business, now how we read the balance sheet Going to learn
Now we will know that the most important things in the balance sheet such as assets, liabilities, expenditure, and such things. So now we begin. The balance sheet is divided into two parts, the first one is called assets and the second one is called liabilities, in which the money we have to pay is written. So first we talk about liabilities.
(1) Share Capital:
When we start reading the balance sheet, we first see the share capital. In easy language, we can call the share capital as business money. Now we talk about how to invest money in business, then which angle does it come in? Who has started a business and who has invested in business from outside? If the company is talked about then it can also be called businessmen and people like us who buy money from outside buy the shares of the company. This is the capital given to the business which is to be returned to each business as the owners of the business and the business are addressed separately at the time of making the company.
(2) Reserve and Surplus:
Just as the owner of every business saves some money from the profit that if the business has some problems then this money can help, in the same official language, it is called the reserve.
The surplus is the profit of the company which is required to be shown in the balance sheet so that everyone is benefited properly or not. It is also the business that has to give back to the investors because this money is taken from the investor's profit. If the reserve exceeds the requirement, it is given in the form of bonus shares.
To make every business big, money is needed and this money is brought in different ways and there is also a type of loan, which is taken on interest. And one day it has to be returned. Some more and some work are time.
(4) Current liabilities:
This is a loan that we have to pay within a year. The raw material or short-term loan comes from there, which are used for working time.
Now we come to the part of assets. And know that there are such things in the assets part, which we should know. Let me tell you again that in this part we will get to know about the property from where we get money or whether the money is going to come, such things should be written here.
(1) Fixed Assets:
If we think in a general way, it is like we buy a place for business or build a building, this property belongs to the business and it is called fixed assets. Which we do not think of selling soon.
To understand your investment, think as if you are thinking of investing ahead of us for high profits, in the same way, companies also think and companies buy shares or real estate, gold, the business of others or take a stake. A business should invest, it is a sign of a good company.
(3) Current Assets, Loans, and Advances
Current assets are also an asset type but it is folded into current assets which can be changed at any time. Such raw material as it comes in because the price of it keeps changing. And debtors (such business Parties from where we have to get money) also come here. And cash and bank balance also come in it.
And the business of loans is lent to anyone from where interest is pending. Advance means to advance or give advance process to the staff. Where we have given money but work is pending.
So here is the analysis of the issues of importance on the balance sheet. This is basic, if you want to read how the balance sheet is read, then you must read this book in detail.