Q.1What is Balance Sheet?

It consists of company’s assets, liabilities and shareholder’s equity at specific point of time. It is a
financial statement that provides an idea what a company owes and owns as well as amount
invested by shareholders.

Q.2What is Capital Structure?

Capital structure is how a firm finances its overall operations and growth by using different sources
of funds.

Funds:

1.Bonds

2.Equity

Debt-to-Equity Ratio as a Measure of Capital Structure

Both debt and equity can be found on the balance sheet. The assets listed on the balance sheet are
purchased with this debt and equity. Companies that use more debt than equity to finance assets
have a high leverage ratio and an aggressive capital structure. A company that pays for assets with
more equity than debt has a low leverage ratio and a conservative capital structure. That said, a
high leverage ratio and/or an aggressive capital structure can also lead to higher growth rates,
whereas a conservative capital structure can lead to lower growth rates. It is the goal of company
management to find the optimal mix of debt and equity, also referred to as the optimal capital
structure.

Analysts use the D/E ratio to compare capital structure. It is calculated by dividing debt by equity.

Balance sheet:

Assets= Liabilities + Shareholder’s Equity

Assets:

In assets section accounts are listed from top to bottom in order of their liquidity.

Liquidity:

Liquidity describes the degree to which an asset or security can be quickly bought or sold in the
market without affecting the asset's price.

Current Assets:

1.Cash and cash equivalent: Most liquid assets, Hard cash

2.Accounts Receivable: Money to be received.

3.Marketable Securities: Equity and debt securities for which there is a liquid market.

4.Inventory: goods available for sales maybe at lower price than the current price.

5.Prepaid expenses: Value that is already paid

Long Term Assets:

Fixed assets: Land, Machine, Capital goods,Buildings

Intangible Assets: Goodwill, Trademark

Current Liabilities:

1.Tax,rents,accounts payable

2.Wages Payable

3.Customer Prepayments

4.Dividends Payable

Non Current Liabilites:

1.Long term debt: Interest and principal on bonds issued

2.Deferred tax liabilities: taxes are remaining to be paid but decided not to pay for another year.

Shareholder’s Equity:

Money attributable to shareholders.

Also called as net assets.