Page 282 - Cambridge IGCSE Business Studies

Cambridge IGCSE Business Studies Section 5 Financial information and decisions

How to interpret a balance sheet

The balance sheet gives different stakeholders useful information about a business.
It shows:
TOP TIP
If a question simply refers to
■ the assets the business owns
the ‘financial statements’, you
could look at income statements, ■ what the business is owed
balance sheets or cash-flow ■ what the business owes
forecasts. ■ how the business finances its activities.

Remember that a balance sheet is only a snapshot of a business’s fi nancial position
at a particular point in time – the date of the balance sheet. The individual fi gures

can change a lot in a short space of time. Also, as you learned earlier, the non-

current asset valuations on the balance sheet may be different from the market
value of these assets. For these reasons the balance sheet is not a reliable measure
of how much a business is worth.

ACTIVITY 22.3

Consider the balance sheet below for JB Plastics Ltd.

$000s $000s $000s $000s
Non-current assets
Land and buildings 30
Machinery 60
280
Motor vehicles 10
100
Current assets
Inventories 15
Trade (accounts) receivable 30
Cash and bank balance 5
50
Less:
Current liabilities
Trade (accounts) payable 16
Taxation 9
Dividends 5
30
Net current assets 20
Net assets 120

Financed by:
Shareholders’ equity
Share capital 40
Retained profits 50
90
Non-current liabilities
Bank loan 30
Capital employed 120