Thread by @ICICI_Direct

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Starting a series on Fundamental Analysis📈

Financial Statements majorly consist of:
🔶Balance Sheet
🔶Profit & Loss a/c
🔶Cash Flow Statement

Let's begin this series by understanding a Balance Sheet

A thread 🧵👇 #LearnwithICICIDirect

[A] What is Balance Sheet (BS)?

🔶 It is a statement of Co's Assets, Liabilities & Equity

🔶 Simply, it is the snapshot of what the Company owns and what it owes

🔶 It is prepared on a specific date

Check out the below image 👇

[B] What are the Components of BS?

🔶Assets - What Company owns
🔶Liabilities - What Company owes to outsiders
🔶Equity - What Shareholders owns

Mathematically,
Assets = Liabilities➕equity

Let's understand these parts in detail

Contd.👇

Asset is anything that provides or will provide economic benefit 💸to the company

It includes:
🔶Plant and machinery,
🔶Furniture,
🔶Investments,
🔶Stock in hand,
🔶Cash,
🔶Trade receivables,
🔶Assets under development,
🔶Other assets

Check image 👇

[B.2] Liabilities

Liabilities are the obligation of the co. to pay something to outsiders

It includes:
🔶Loans,
🔶Taxes,
🔶Trade payable,
🔶Accrued expenses,
🔶Other Payables

Check detailed liabilities in below image 👇

[B.3] Equity

Equity = Net Assets of the Co.

It includes:
🔶 Equity Capital: Money invested by owners at face value (FV)

🔶 Retained Earnings: Profit retained till date

🔶 Other Reserves, e.g, Securities Premium Reserve - money recd over FV from shareholders on issue of shares

[C] How is it prepared?

🔶 Based on Accrual Accounting

🔶 Assets & Liabilities are classified into Current & Non-Current. Current is payable/receivable in <1 yr

🔶 With comparative figures from last period

🔶 Includes intangible assets also which don't have physical existence

[D] How it is Used?

🔶 Helps gaining insights into Financial Position of Co.

🔶 Used for calculating several ratios

🔶 To assess liquidity position of the Co.

🔶 To compute Net worth of the Co.

🔶 Further, it is used by several stakeholders for different purposes

[E] Limitations of BS

BS doesn't capture the entire picture always

For example, it doesn't consider:
🔶Brand value of the Co.
🔶Team of employees
🔶Strategic relations with customers/vendors
🔶Quality of Management
🔶Fair value of all assets

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TL;DR

[1] Parts of Financial Statements
[2] What is Balance Sheet
[3] Components of BS
[4] What are Assets
[5] What are Liabilities
[6] What is Equity
[7] How BS is prepared
[8] How BS is used
[9] Limitations of BS

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