Business Balance Sheet: Fill & Download for Free

Two questions:Where has the money come from?Where did the money go?Here is what a Balance Sheet looks like, broadly:Simple, right? Let me show you what the numbers on the balance sheet mean:The total of “sources” and “applications” is equal. Obviously.“Liabilities” is the money that you have borrowed from someone else. If you start a business with the bank’s money, then the bank loan would be a liability.“Equity” is your own money. If you’ve invested in the business yourself, then here is your total amount invested.“Assets” represents all the places where your money is blocked. It could be an electric fan or a machine or even an advance given to your suppliers.Let us see the things that you should look for in a balance sheet.Liabilities vs. equityShould you put your own money in the business or should you borrow? The benefit of borrowing is that you can start a business even if you don’t have money. The bad thing is that you need to pay it back even if you are not earning profit.So which is better?The ideal ratio depends on the business - in some cases, higher is acceptable while in other cases it is not. Anything too high means higher risk; and anything much low means too much own capital.Share capital and net worthWe know that “equity” is the amount belonging to the owners. It has two parts:The amount originally invested by the owners is called “capital”“Reserves” is the profit earned after investment, which belongs to the owners.If a company has huge reserves, it means that it has earned many profits previously and thus can survive losses in the future. See these numbers on the Balance Sheet.Current and non-current liabilitiesWe know that liabilities show the amount borrowed from others which needs to be paid back. The Balance Sheet also shows when it is to be given back. See these two firms -One needs to repay the money tomorrow itself (called current liabilities), the other needs to pay it back after one year (called non-current liabilities). Which is better?If you have many current liabilities, you should ask whether the company has enough cash to repay those liabilities. Where will the cash come from?Current and non-current assetsWe discussed that “assets” are those things where your money is currently blocked. You will get money out of these assets. Just like liabilities, the Balance Sheet also tells you when you will get the money out of your assets.Just like the liabilities:If you purchased a piece of land from the money, then it is non-current asset because you will not get the money back immediately.But if your money is pending with the customer, it is a current asset because the customer can pay it back very soon.Simple, right?Working CapitalNow, just think -Current assets are those which will give you money very soonCurrent liabilities are those which you have to pay very soonTherefore, the equation looks something like this -Now, should we aim for a higher working capital or lower?High working capital means that your cash generation next year will be higherBut lower working capital might mean that you will generate cash this year itselfWorking capital is an important number that is visible from the balance sheet. It helps us to understand how the company will perform over the next one year. If the working capital is negative, it might mean that the company needs to pay more money than it will generate over the next one year.Since working capital is very important, companies show the current assets and current liabilities as a net number on the balance sheet. This is called “net current assets” - as is visible in any balance sheet.Cash and LiquidityCash is a very important figure in the Balance Sheet. It shows how much money you actually have in your hand, right now. A lot of money is blocked in several places - such as land, machinery, or it is kept with your customers etc. - but cash is the money that you have with you right now.Sometimes, you may not have cash but some other current assets which is almost like cash - such as liquid funds. This means that you can convert it into cash whenever you want. For the purpose of a balance sheet, this is also treated as cash.Cash should not be very low, because you might need the money any time. But at the same time, it should not be very high also - because higher cash is useless - it is better to invest it into the business so as to make more money.The trick is to find the right balance.Analysis of the balance sheetNow that you know the meaning of most of the terms, you can understand the business of the company using these tools -Current Ratio - it shows the current assets divided by current liabilities. If the answer is 2, this means that in the next one year, you will receive twice the amount of money that you have to payDebt to equity ratio - it shows how much of the total money in your business is funded by your own pocket and how much is borrowed. If the ratio is 2, this means that you have borrowed twice the money that you have invested yourselfDebtor’s days - it shows how many days your customers take to pay the money back. This number should be as less as possible. It is calculated by dividing your debtors by total salesWorking capital turnover - you get the money and invest it again - that is how business is done, right? The working capital turnover ratio shows how many times you get the money back in a year. It is calculated by dividing the turnover with working capital. This number is also higher the better.There are many such analytical tools that can be applied on a Balance Sheet to understand it better. Some of these tools cannot be applied only on the Balance Sheet, you also need Profit & Loss account with it. Here[1][1][1][1] is a list of many such analytical tools.Maybe it would take another answer to explain the concept of a P&L account. But, till then - I hope you have at least some clarity over what the numbers on the Balance Sheet really mean. Good luck reading and understanding!Footnotes[1] 20 Balance Sheet Ratios to Quickly Determine a Company's Health[1] 20 Balance Sheet Ratios to Quickly Determine a Company's Health[1] 20 Balance Sheet Ratios to Quickly Determine a Company's Health[1] 20 Balance Sheet Ratios to Quickly Determine a Company's Health

Below is the balance sheet of Google and Microsoft as of 2019. Nearly $300 billion US dollars!..Google Balance SheetMicrosoft Balance SheetSundar Pichai and Satya Nadella can very well resign their jobs and start their own companies but they need to struggle real hard to make that into a company with a balance sheet as shown above and that too those companies don’t even make the cut and get gulped by giants. Both Microsoft and Google are sitting on top of huge cash pile. They can very well drive R&D’s into whatever projects they want (something like space elevators) and they can afford to fail big. And if you see any start ups coming up with a state of the art technology, you can just buy them. Over the last decade, Google and Microsoft acquired hundred of such companies, the best examples are Waze, LinkedIn, GitHub etc.Both Sundar Pichai and Satya Nadella are at positions where they utilize their abilities at the best. They have the leverage of money, thousands of brilliant minds to execute their ideas and drive their respective companies to new frontiers of technology. It’s like you can do whatever the heck you want because you are the leaders in world of technology and you have all the might to get it done.When Steve Balmer left Microsoft, the company was in an absolute turmoil. Satya understood windows were a thing of the past and Microsoft needs to go beyond the world of windows. He directed the Microsoft ship towards the cloud business and now Microsoft Azure is one of the most coveted names in the arena of cloud computing. He is now regarded as the best thing happened for Microsoft since Bill Gates.Sundar Pichai took the post left by the legacy of Larry Page and Sergey Brin. It carried a lot of heavy weight. But Pichai led Google to new areas including autonomous cars and with the latest test runs, we can safely assume that Google will own the world of autonomous driving like they do for internet search. Google can afford failures like Google Plus without leaving a trace in their balance sheet or technological advancement. They can afford to fail big and learn from it. Think if Sundar Pichai left Google and started Google Plus on his own, where would he be now?.Both Sundar Pichai and Satya Nadella can thrive in cut throat situations because they are damn skilled. They are not managerial people who raised to this position but they are hardcore engineers who learned the management principles on their way up. People of that breed are really a hard find. They both are visionaries and the tech world treats them with utmost respect.Now you tell me, Do they really need to quit their jobs and start their own companies?

Let's break this complex banking jargon into smaller terms to have a better understanding.Exposure- In banking, exposure means ‘your assets which you've lent to others’. More is your exposure, greater is the chance you'd end up bankrupt in case the borrowers default! So, it is wise to have an optimum exposure to ensure profits and to avoid contingency.Balance-Sheet Exposure- Banks perform multiple functions. The usual borrowing-lending appears on the balance-sheet of the banks. So, any type of lending is a balance-sheet exposure. But, there are certain transactions which don't appear on the balance sheet.They are clubbed under off-balance sheet exposure.Eg- Letters of undertaking, leasing assets, letters of credit etc. When banks issue LoUs, they act as guarantor for a business, as a third party. Bank’s role is just to act as security for the money business plans to raise. When business defaults, banks will have to pay to the concerned party, it is when these appear on the balance-sheet of the banks. Till the business was in good health, all the parties were happy. When business goes bankrupt, the liability shifts onto the bank as it was the guarantor for the business. So, this borrowing which a business owes to its creditor which becomes a liability on the balance sheet of the bank due to business going bankrupt and unable to pay, when valued in monetary terms (all the assets like land, office etc. are valued) is called the credit equivalent of off-balance sheet exposure of the bank.