Balance Sheet Analysis. Kynseed steam dba. Now that you can answer the question what is a balance sheet. Let’s look at how to read a balance sheet. Investors, creditors, and internal management use the balance sheet to evaluate how the company is growing, financing its operations, and distributing to its owners. Examples of Balance Sheet. The following Balance Sheet example provides an outline of the most common Balance Sheets of US, UK and Indian GAAP. It is impossible to provide a complete set that addresses every variation in every situation since there are thousands of such Balance Sheets. Each example of the Balance Sheet states the topic, the relevant reasons, and additional comments as needed.
The main purpose of analysis is to determine a company's financial strength, as well as its economic efficiency. These statements are among those that publicly traded companies must file with the U.S. Securities and Exchange Commission. You'll find condensed versions of Microsoft's balance sheet and income statements for the first quarter of the fiscal year 2020 ('FY20 Q1' for short) at the bottom of the page. Reference those numbers as we work through some of the key points to look for in any company's financial disclosures. In addition, when companies put together their financial statements, they tend to omit zeros at the end of long numbers to save space.
The zeros are omitted in groups of three. If you see at the top of a balance sheet that numbers are supposed to be stated 'in thousands,' for instance, you will need to mentally add ',000' to the number you see ($10 stated in thousands would be $10,000). If you see 'in millions' at the top of the balance sheet, as you will with Microsoft's balance sheet, you will need to add six zeros to the figure ($10 stated in millions would be $10,000,000).
Generally speaking, a company's should be at least 1.5, but probably not more than 3. The current ratio is calculated by dividing the total current assets by the current liabilities. In FY20 Q1, Microsoft had a current ratio of 2.86 ($165.9 billion divided by $58.1 billion). Unless the business is saving resources to launch new products, build new production facilities, pay down debt, or pay a dividend to shareholders, a current ratio above 3 usually signals that management does not use its cash efficiently.
The total current assets in FY20 Q1 was $165.9 billion. The inventory (not listed on the condensed balance sheet) was $2.6 billion. Other entries on the balance sheet that are not liquid are deferred income taxes ($234 million) and 'other' current assets ($7.6 billion).
Subtracting these three figures from $165.9 billion results in $155.5 billion. This figure represents the amount the company can turn into cash almost immediately. If you divide $155.5 billion by the total current liabilities ($58.1 billion), you get $2.68. Even under the most stringent test of financial strength, Microsoft has $2.68 in current assets for every $1 in liabilities.
Microsoft's Balance Sheet(in millions)June 2019Sept.