The balance sheet

Reading Practice

Language Material

UNIT V

cost - ціна, вартість

balance sheet - балансові звіти

bad debts [dFt] - безнадійні борги

inventory - запас, резерв

liabilities [laIq'bIlqtI] - пасив, грошові зобов’язання, борги

assets ['xsFt] - актив баланса

current ratio ['reISIqu] – відношення оборотного капіталу до короткострокових зобов’язань

quick ratio - коефіциент критичної оцінки

working capital - оборотний капітал

sound - платоспроможність

trading on equidity - продаж акцій

proprietorship - коефіциент права власності

THE BALANCE SHEET. In contrast to the operations the balance sheet is a "still picture" of the business. Assets on the side are balanced against liabilities on the other.ASSETS include everything that is owned by the business.LIABILITIES are those amounts which the business owes.

The principle is the same regardless of the size of the business.It is expressed in the formula: ASSETS minus LIABILITIES equals NET WORTH or ASSETS equals LIABILITIES plus NET WORTH.

The figures for the balanse sheet come from the records kept by the business.Each item on the balance sheet is based on facts that have been recorded daily in different ledger accounts.The records used for the operations statements are also used in preparing a balance sheet.

CURRENT RATIO.The assets are dividing into current assets and fixed assets.The relationship between current assets and current liabilities is a prime measure of liquidity of any firm.Liquidity is the measure of ability to pay debts as they become due.

Current assets are assets that are in the form of cash or will convert into cash withing 90 days.Current liabilities are those debts that will be due within one year.The relationship between current assets and current liabilities is called the current ratio.Sound financing demands that this ratio be at least 2 to 1.The current ratio is found by dividing the current assets by the current liabilities.

QUIT RATIO.This ratio is also known as the acid test of liquidity.It is the relationship between only the most liquid assets(cash and accounts receivable) and the total of the current liabilities.The conservative rule is that this ratio should be at least 1 to 1.In other words,cash plus receivables should equal or exceed the current liabilities.

WORKING CAPITAL.Working capital is the difference between current assets and current liabilities expressed in dollars.

THE PROPRIETORSHIP RATIO of owner's equity ratio is the relationship between the owner's investment in the firm and total assets being used in the business.This ratio can be exprsessed as a ratio of owner investment to total assets or as a percentage of those assets.

There are many other ratios utilized in the analysis of business firm operations.Most small firms are maintain adequate current ratios,quick ratios,and working capital,proper inventories,and a 50 percent proprietorship ratio maintain sound financial structure.

TRADING ON EQUITY.In connection with other investment,prosperctive business owners and managers should become familiar with phrase "trading on equity".

This phrase refers to the relationship between the creditor capital(liabilities) in the business and the owner capital.Trading on too thin an equity is a term used to describe owners who have too little of their money invested compared with the creditor capital(liabilities) used to finance the business.A proprietorship ratio of 50 percent indicates that the owner or owners have invested half the value of the total assets used in the business.When this ratio falls below 50 percent,the outside creditors are supplying more of the firm's total capital needs than the owners are.This indicates,in most cases,that further capital will be more difficult to obtain either from current loans, sale of securities,or other investors.Such owners are truly trading on too thin an equity and probably need more investment capital on their own.

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