How to read Balance Sheet of a company (Part-2)

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Liabilities of balance Sheet :

We already discussed the definition of liabilities in the previous post.

Liabilities are of two types:

1) Non-Current liabilities

2) Current liabilities



Below is the screenshot of Liabilities of Hero MotoCorp Company.stock investing buy stocks stock trading online trading

Non-Current Liabilities :  Non-Current Liabilities are also called Long term liabilities. They are the liabilities that company owes to pay in more than one year. If the liabilities are paid within the year then those liabilities are called current liabilities.

Some examples of non-current liabilities are as follows:

a) Long-term debt: Interest and principle on bonds issued or taken from banks.

b) Pension fund liability: the money that a company is required to pay to its employees’ retirement accounts.

c) Deferred tax liability: Taxes that have been accrued but will not be paid for another year.

Current Liabilities : Current liabilities are those that company has to pay within one year and are listed in order of their due date

Some examples of current liabilities are as follows:

  • Short-term debt
  • Bank indebtedness
  • Interest payable
  • Rent, tax, utilities
  • Wages payable to employees
  • Customer prepayments
  • Dividends payable and others

 Assets of the balance sheet:

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Types of Assets :

  1. Current Assets : We already discussed about the assets in the previous post. In this section we will discuss the main forms of assets that find a place in every balance sheet.
  1. Non- current Assets: Non-current assets are the assets which are not liquid in nature that is they cannot be converted into cash very easily. However, these type of assets are expected to be converted into cash within a year or they can have a life span of more than a year. Some of the examples of non-current assets are machinery, buildings, patent, trademark, copyrights etc.

In below snapshot we can see the types of non-current assets of company Hero MotoCorp:

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The first type is fixed asset which is further broken into tangible and intangible assets :

Tangible Assets : These are the assets which are present in physical form. For eg. Buildings, computers, machinery, land etc.

Intangible Assets : These are the assets which are not present in physical form but they have a certain economic value. For e.g. Copyrights, trademarks, patents etc.

In below snapshot we can see the tangible and intangible assets of Hero MotoCorp company.stock investing buy stocks stock trading online tradingIn above snapshot we also see there is a column named as accumulated depreciation / amortisation which basically represents the depletion of the value of the assets with time. For example – a building can have a life span of 50 years so as the time progresses, the economic value of building decreases i.e. its value depletes. Depreciation is word used for tangible assets when their value depletes with time whereas amortization word is used with intangible assets when their values depletes with time. For example, if Hero MotoCorp has a patent of a certain technology for 17 years, then the value of the patent will decrease with every year and will become zero at the end of 17th year.

From the above snapshot, we can derive that,

                           Net block =  Gross block – Accumulated depreciation / amortisation.

The next line after fixed assets is Non-Current Investments which are the investments made for the long term. These type of investments could be buying stake in other companies, buying shares of a company, investing in mutual funds etc.

The next line after non-current investments is Deferred Tax Assets which refer to the taxes paid in advance.

The next line after deferred tax is long term loans and advances which are the loans given by the company to other companies.

The next line after loans and advances is other non-current assets which are basically the assets available in miscellaneous forms.

Current Assets: Current assets are the assets which are liquid in nature that is they can be converted into cash very easily.

Below is the screenshot of current assets of Hero MotoCorp company.



The first line on the current assets is current Investments. This type of Investments involves investing in equities and mutual funds.

Below is the snapshot of current investments made by the Hero MotoCorp company in FY16.

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The next line on current assets is Inventory. Inventory is the raw materials and components, work in progress products, goods in transit of raw materials, stores and spares etc. Which are considered to be the portion of company’s assets but are not yet ready for sale but will be available for sale in near future. Inventory is considered as one of the most important Assets of a company because the turnover of inventory usually represents the main source of revenue and earnings for the company's shareholders.

Below is the screenshot of inventory of Hero MotoCorp company.

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The next line on current assets is Trade Receivables. Trade receivables is the amount that the company will receive from their customers, clients, distributors etc.  In a simple language trade receivable can be understood by that the company has already made a sale but is yet to receive the amount from the purchaser.

Below is the screenshot of trade receivables of Hero MotoCorp company.

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The next line on current assets is short term loans and advances. It comprises of the amount company will receive within one year from short term given to suppliers, loans given to customers and clients, loans given to distributors, advanced tax paid by the company etc.




Below is the screenshot of short term loans and advances of Hero MotoCorp company :

The next line on current assets is other current assets which are miscellaneous assets available within the company that have some economic value.

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In next post we will understand "Cashflow Statement" in very simple language.

Keep learning and Keep Earning.

Want to know How to read Annual Report of a Company, click here

Want to know How to read Profit and Loss Statement , click here

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