2.0 Balance Sheet

Introduction

For a public listed company the balance sheet required to be disclosed annually in their annual report. Balance sheet is also known as statement of financial position.

Balance sheet has three components as follows:

2.1) Assets

2.2) Liabilities

2.3) Equities

Balance sheet basically got its name because it balance these three components. The equations for balance sheet are as follows:

Asset = Liability + Equity

There is two ways of balance sheet presentation, classified balance sheet and liquidity based presentation.

Classified Balance Sheet

This is the most common type of balance sheet presentation. For both IFRS and US GAPP, the assets and liabilities had to separate into current and non-current for classified balance sheet.

Below shows classified balance sheet of FIAMMA (6939) for the financial year ending 30 September 2015.

Liquidity Base Presentation

Liquidity base presentation presents the assets and liabilities in order of their liquidity (the most liquidity will presented at the top). This presentation is provides reliable and more relevant presentation. This presentation is commonly uses in bank. For IFRS company report liquidity base presentation balance sheet does not required to classified their assets and liabilities into current and non current while company report under US GAAP still required.

Below shows liquidity base presentation balance sheet of Maybank (1155) for the year ending 31 December 2014.

Analysts’ point of view

Some analysts use vertical common sized analysis for the balance sheet to compared different company of the different size which operated in the same industries.

Vertical common sized analysis basically convert the each asset of the company into weight of total asset and each liability and equity of the company into weight of total liabilities and equities.

Table below shows example of vertical common size analysis.

Balance sheet of company A and company B

($Thousand)	A	B
Asset
Current Asset
Cash and equivalent	10,000	200
Account receivable	8,000	500
Inventory	1,000	1,000
Total Current Asset	19,000	1,700
Property, Plant and Equipment	750	750
Goodwills	-	100
Total Asset	19,750	2,550
Liability and Equity
Current Liability
Trade Payable	1,000	100
Total Current Liabilities	1,000	100
Long Term Borrowing	5,000	200
Total Liabilities	6,000	300
Total Equity	13,750	2,250
Total Liabilities and Equity	19,750	2,550

Common Size Vertical Balance Sheet

Percentage %	A	B
Asset
Current Asset
Cash and equivalent	50.63%	7.84%
Account receivable	40.51%	19.61%
Inventory	5.06%	39.22%
Total Current Asset	96.20%	66.67%
Property, Plant and Equipment	3.80%	29.41%
Goodwills	0%	3.92%
Total Asset	100%	100%
Liability and Equity
Current Liability
Trade Payable	5.06%	3.92%
Total Current Liabilities	5.06%	3.92%
Long Term Borrowing	25.32%	7.84%
Total Liabilities	30.38%	11.76%
Total Equity	69.62%	88.82%
Total Liabilities and Equity	100%	100%

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