How to Read a Balance Sheet

More than a list of assets and liabilities, a balance sheet forecast is the key to planning a successful business.

More than a Summary

A balance sheet describes how well the financial condition of a business can support its trading operations. That's why the quality of the balance sheet forecasts you produce using Figurwizard are as important as the ones for profits.

Fixed Assets

Capital items not intended for resale, which are vital to business operations, describe fixed assets.

They are shown at “net book value” after depreciation has been deducted from their cost. With the sole exception of company cars the net values of fixed assets are always calculated from cost excluding VAT less depreciation. Cars however are calculated from cost including VAT less depreciation as VAT is not reclaimable as input tax for company cars.

Because fixed assets are not intended for resale, they play no part in calculating the liquidity of a business.

Current Assets

Sometimes known as "liquid assets" current assets represent the cash convertible nuts and bolts that support the trading operations of the business.

The principal current assets in order of importance are cash and cash equivalents, accounts receivable, stock / inventory of finished goods and work in progress. Maintaining efficient control of accounts receivable and avoiding having more merchandise on the shelf than is absolutely necessary are always crucial to maintaining positive cash flows.

Net Current Assets and Liquidity

Of all the entries in the balance sheet, this is by far the most important. Net current assets represent the working capital of a business, which broadly defines its liquidity.

If your Figurewizard balance sheet forecast shows a deficit for working capital, you must revisit your planned figures, either to eliminate the deficit by reducing overheads cutting down on investment, improving margins and either adding new capital or long-term debt. A forecast working capital deficit cannot simply be ignored.

To see our balance sheet forecasts in action, follow the link below.

FAQs
Corporation Tax and Marginal Relief From 2023 Deferred Income Explained What is a Monthly Cash Flow Forecast What is Pretax Profit How does a balance sheet balance? Lockdown Recovery: Forecasting Profits, Cash and Finance. How to Apply for Business Interruption Scheme with Figurewizard How to calculate liquidity and short-term liquidity How to calculate markup and margin The Truth about Monarch Airlines Labour's Spending over 10 years from 2000 How to make profits and not run out of cash Credit Checking - How to Read Micro or Short Form Accounts Amortisation of Arrangement Fees for Long Term Loans BHS Profits Performance 2010 - 2014 BHS profits, liquidity and cash flows 2009 - 2014 How to Calculate a Free Cash Flow Forecast Campari: How to apply for a bank business loan What are Current Liabilities What are Current Assets Late Payers and Cash Flow What is Operating Cash Flow? What is Working Capital How to Read a Balance Sheet Business Planning Cash Flow Calculator Short Term Liquidity Business Liquidity Corporation Tax is not Calculated on Net Profit Small Business Corporation Tax Cash Flow Calculator Using Figurewizard - VAT Using Figurewizard - Sales by Month Using Figurewizard - HP or Instalment Plan Budgets Using Figurewizard - How the budgeted cash flow forecast is calculated Using Figurewizard - Fixed Asset Budgets Using Figurewizard - Calculate Purchase of Goods Using Figurewizard - Forecasting Payments to Suppliers Using Figurewizard - How to Forecast Cash Collection Solvency and the Balance Sheet Property in the Balance Sheet Why Equity is a Liability Asset Management and Liquidity Selling Fixed Assets Contracts: Invitation to Treat What is Deferred Income Loss on the Sale of Fixed Assets Calculating Gross Profit Margin Profit and Loss Statement What is Operating Profit What is Net Operating Revenue What is Equity Profit on the Sale of Fixed Assets How Taxable Profit is Calculated What are Operating Overheads Overheads - Provisions How Depreciation is Calculated What is Business Operating Activity What are Fixed Assets Liquidity and Cash Flow Balance Sheet Liabilities and Leases Stock or Inventory Control What is Distressed Stock or Inventory What is Interest Suspense Account Product Safety Laws What is a Bill of Exchange What is Payment at Sight What is a Pro Forma Invoice What is a Bill of Lading What is a packing note What is Demurrage Cash Flow Forecasts and Planning Factoring: Invoice Discounting and Cash Flow How Does VAT Work Figurewizard as a Sales Aid for Factoring and Invoice Discounting