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More practice

Firstly, can you identify any obvious business types from the profiles from published company accounts shown in Table 3.10? Note that intangibles may be patents, know-how etc but in many companies they are the general unspecified goodwill paid at time of acquisition.

TABLE 3.10 Six companies 'balance sheet profiles

A

В

С

D E F

Tangible fixed assets

35%

82%

23%

102%

32%

70%

Intangibles

19%

27%

2%

52%

0%

Investments

10%

16%

28%

8%

16%

32%

Inventories

42%

1%

25%

10%

14%

1%

Receivables

57%

17%

38%

3%

19%

1%

Bank

22%

9%

25%

6%

16%

2%

Overdrafts

-2%

-10%

-4%

-2%

-13%

-3%

Payables

-63%

-33%

-60%

-29%

-32%

-1%

Taxation

-1%

-1%

-1%

-2%

-5%

0%

100%

100%

100%

100%

100%

100%

Long-term loans

81%

102%

44%

40%

76%

28%

Equity

19%

-2%

56%

60%

24%

72%

100%

100%

100%

100%

100%

100%

NOTE: in tables percentages are rounded to whole numbers

The business sectors and profiles are: specialist engineer (A), supermarket (D), telecoms (B), property (F), pharmaceutical (E), engineering-aero sector (C).

Table 3.11 is a slightly expanded balance sheet detail of Table 3.8, showing more detail.

TABLE 3.11 Balance sheet - UK management-style layout

Balance sheet - UK management-style layout

Alternative balance sheet layouts

The balance sheet layout introduced above is most useful for management purposes, splitting the balance sheet into its capital employed and to be managed 'side' with the other 'side' showing how the business is funded.

Simply listing assets in one column and liabilities in another is the most common layout to be found in published accounts. This is the common approach in many EU countries, the United States and other countries.

United States

Lists of assets starting with the most liquid current assets, followed by listing of liabilities (Table 3.12).

TABLE 3.12 Balance sheet US-style layout

Balance sheet US-style layout

Finally, Table 3.13 shows an example of a typical UK balance sheet, this time of a small contracting business in decline owing to the all-too-frequent pressures on the sector.

TABLE 3.13 Smaller UK company balance sheet as filed at Companies House

Smaller UK company balance sheet as filed at Companies House

Conclusion

- Cash flows have to be monitored.

- Cash balances and profits may be quite different amounts but they must reconcile.

- Cash may be 'king' - many strategies are about making money and generating cash, but this cannot be done if there are no profits either from operating or disposing of assets.

- Understanding profit and how it was generated is vital, as is knowing the profiles of your costs. The profile will tell you much about your strategies.

- Understanding the balance sheet and its profile again tells you much about your strategy - your strategic position at the end of the year, and the assets at your disposal as you go forward.

Published financial statements are considered in Chapter 6 with further exercises in interpretation of them. Cash flow is considered in Chapter 8.

Revision and learning pointers

Review your own or others' accounts, UK small and large, US etc and relate layouts and terminology to the basic formats and terms used in this chapter.

 
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