The Balance Sheet

1. The Balance Sheet A2 Business Studies

2. Aims & Objectives Aim: • Understand balance sheets Objectives: • Define a balance sheet • Explain the different components of a balance sheet • Analyse the balance sheet of a company in the short term and long term

3. Starter Balance sheet bingo!

4. The Balance Sheet • Worksheet • Peer Assessment

5. Analysing Balance Sheets • Can commit short term analysis and long term analysis.

6. Analysing Balance Sheets – Short Term • Involves examining the businesses’ ability to pay it’s bills over the next 12 months. • Look at the current liabilities and current assets (ability to pay those s.t. debts). • Known as Working Capital • If net current assets > net current liabilities, the business can pay off its short term debts with its short term assets. • If not it cannot cover its short term liabilities with short term assets.

7. Analysing Balance Sheets – Long Term Can be examined in a number of ways: • Movement of non-current assets • A sudden increase in fixed assets may show a rapidly growing company, which may mean the that the company’s financial performance may improve in medium term. • Considering how a business has raised its’ capital: • It is risky for a company to borrow too much. • A company raising more finance through long term loans, rather than share capital is vulnerable to changes in interest rates. • Changes in Reserves • A rapid increase in reserves (retained profit) is likely to reflect a healthy position with regard to profits.

8. Marks & Spencer ST Analysis • Negative figures shown in brackets. • Operates with negative working capital in both years (current assets < current liabilities). • However 2007 has a smaller negative figure than 2008. • M&S’s current liabilities exceeded its current assets by a smaller amount in 2007. • Nevertheless it did not have enough CA to pay its CL. • Common in retailers – as they can rely on customers spending large cash sums in their shops daily, providing them with enough cash to pay CL.

9. Marks & Spencer LT Analysis • M&S has increased the amount of capital borrowed in the long term. • Shown by an increase in non-current liabilities. • However, at the same time the company’s value has increased substantially. • Because it’s worth has increased significantly, a small increase in LT debt would not be regarded as an important issue.

10. Marks & Spencer Analysis Task • Complete the missing figures for 2009 in M&S’s balance sheet. • Analyse the short term finances of M&S using working capital. • Analyse the long term financial position of M&S.

11. Marks & Spencer Analysis Plenary • Complete the missing figures for 2009 in M&S’s balance sheet.

12. Marks & Spencer Analysis Plenary • Complete the missing figures for 2009 in M&S’s balance sheet.

13. Marks & Spencer Analysis Plenary • Analyse the short term finances of M&S using working capital. • Analyse the long term financial position of M&S.