Whether you plan to statrt a new business and
apply for a loan or analyze a company's performance you need to submit
or study the following financial statements:
- Balance sheet: The balance sheet describes the
financial state of the company on a particular date like 31st December
2009. It lists the assets and liabilities of the company. Assets are
things that the company owns and liabilities are things that the
company owes others. Assets examples are cash in Bank, plant and
machinery, airplanes, loans given by the company, etc. Examples of
Liabilities are loans taken from a bank, equity, loans taken for
purchase of equipment, etc. The total of assets must equal total of
liabilities in a balance sheet.
- Income statement or Profit & Loss statement:
This statement is easy to understand and contains all the data about
the revenues of the company like fees received for services like
computer training or from sales of products of the company. The
expenses include salaries of the employees, electricity and telephone
bills, advertisement, rent for the office, depreciation, etc. The
revenues minus the expenses gives the net income or profit. If the
expenses are more than the revenues you have a loss. Some people call
the revenues the 'top line' and the profit as the 'bottom line'.
- Cash flow: This statement contains all the cash that
comes in and all the cash that goes out. Non-cash expenditures like depreciation
is not included in this statement because you don't really make a cash
or cheque payment for the depreciation amount. It is a legitimate
expense for the wear and tear of equipment used in the financial year
or years and the income tax department publishes the percentage of
depreciation that can be deducted on various kinds of equipments. The
closing cash flow amount for the last month becomes the opening balance
for the next month. If your cash flow is negative for a longer period,
your business is in trouble! Also did you notice that we used simple
functions like sum and pmt or ipmt to calculate totals, loan repayment
per month and the interest repayment component on loans per month?
For many people who work in the stock market it is important to analyze
such financial statements and be aware of their manipulations by
unscrupulous business people before making an investment. Otherwise you
might be stuck with paper that has no value.
In our example we have made assumptions like depreciation of 50% per
year for the computers. We have also ensured that the students pay
their fees on joining the course. In the beginning the computer
training center has less students and with advertisements in the right
places and word of mouth, the business gets more students. Excel
provides a plan and makes calculations easy but the business has to
work the plan! |