The Balance Sheet

A2 Business Studies

Aims & Objectives

Aim:• Understand balance sheetsObjectives:• Define a balance sheet• Explain the different components of a balance

sheet• Analyse the balance sheet of a company in the

short term and long term

Starter

Balance sheet bingo!

The Balance Sheet

• Worksheet

• Peer Assessment

Analysing Balance Sheets

• Can commit short term analysis and long term analysis.

Marks and Spencer’s Consolidated Balance Sheet as at 31 March 2008

2008 £m 2007 £m

Intangible non-current assets 305.5 194.1

Tangible non-current assets 5,673.8 4,340.5

Inventories 488.9 416.3

Receivables and cash 692.8 430.1

Total assets 7,161.0 5,381.0

Current liabilities (1,988.9) (1,606.2)

Working Capital (Current Assets – Current Liabilities) (807.2) (759.8)

Non-Current Liabilities (3,208.1) (2,126.6)

Total Liabilities (5,197.0) (3,732.8)

Net Assets 1,964.0 1,648.2

Share Capital 628.0 629.2

Reserves and Retained Profit 1,336.0 1,019.0

Total Equity 1,964.0 1,648.2

Analysing Balance Sheets – Short Term

• Involves examining the businesses’ ability to pay it’s bills over the next 12 months.

• Look at the current liabilities and current assets (ability to pay those s.t. debts).

• Known as Working Capital• If net current assets > net current liabilities, the

business can pay off its short term debts with its short term assets.

• If not it cannot cover its short term liabilities with short term assets.

Analysing Balance Sheets – Long Term

Can be examined in a number of ways:• Movement of non-current assets

– A sudden increase in fixed assets may show a rapidly growing company, which may mean the that the company’s financial performance may improve in medium term.

• Considering how a business has raised its’ capital:– It is risky for a company to borrow too much.– A company raising more finance through long term loans, rather than

share capital is vulnerable to changes in interest rates.

• Changes in Reserves– A rapid increase in reserves (retained profit) is likely to reflect a

healthy position with regard to profits.

Marks & Spencer ST Analysis

• Negative figures shown in brackets.• Operates with negative working capital in both years (current

assets < current liabilities).• However 2007 has a smaller negative figure than 2008.• M&S’s current liabilities exceeded its current assets by a

smaller amount in 2007.• Nevertheless it did not have enough CA to pay its CL.• Common in retailers – as they can rely on customers spending

large cash sums in their shops daily, providing them with enough cash to pay CL.

Marks & Spencer LT Analysis

• M&S has increased the amount of capital borrowed in the long term.

• Shown by an increase in non-current liabilities.• However, at the same time the company’s value has

increased substantially.• Because it’s worth has increased significantly, a

small increase in LT debt would not be regarded as an important issue.

Marks & Spencer Analysis Task

• Complete the missing figures for 2009 in M&S’s balance sheet.

• Analyse the short term finances of M&S using working capital.

• Analyse the long term financial position of M&S.

Marks & Spencer Analysis Plenary

• Complete the missing figures for 2009 in M&S’s balance sheet.

Marks and Spencer’s Consolidated Balance Sheet as at 31 March 2008

2009 £m 2008 £m 2007 £m

Intangible non-current assets 355.2 305.5 194.1

Tangible non-current assets 6,542.1 5,673.8 4,340.5

Inventories 489.7 488.9 416.3

Receivables and cash 698.2 692.8 430.1

Total assets 7,161.0 5,381.0

Current liabilities (988.9) (1,988.9) (1,606.2)

Working Capital (Current Assets – Current Liabilities) 199 (807.2) (759.8)

Non-Current Liabilities (4,547.2) (3,208.1) (2,126.6)

Total Liabilities (5,197.0) (3,732.8)

Net Assets 2,549.1 1,964.0 1,648.2

Share Capital 639.0 628.0 629.2

Reserves and Retained Profit 1,336.0 1,019.0

Total Equity 2,549.1 1,964.0 1,648.2

Marks & Spencer Analysis Plenary

• Complete the missing figures for 2009 in M&S’s balance sheet.

Marks and Spencer’s Consolidated Balance Sheet as at 31 March 2008

2009 £m 2008 £m 2007 £m

Intangible non-current assets 355.2 305.5 194.1

Tangible non-current assets 6,542.1 5,673.8 4,340.5

Inventories 489.7 488.9 416.3

Receivables and cash 698.2 692.8 430.1

Total assets 8,085.2 7,161.0 5,381.0

Current liabilities (988.9) (1,988.9) (1,606.2)

Working Capital (Current Assets – Current Liabilities) 199 (807.2) (759.8)

Non-Current Liabilities (4,547.2) (3,208.1) (2,126.6)

Total Liabilities (5,536.1) (5,197.0) (3,732.8)

Net Assets 2,549.1 1,964.0 1,648.2

Share Capital 639.0 628.0 629.2

Reserves and Retained Profit 1910.1 1,336.0 1,019.0

Total Equity 2,549.1 1,964.0 1,648.2

Marks & Spencer Analysis Plenary

• Analyse the short term finances of M&S using working capital.

• Analyse the long term financial position of M&S.