Basics of Balance Sheet

 

A balance sheet is a financial statement that contains details of company's assets or liabilities at a specific point in time. As asset represents how company value is actively being used and the liability and equity represents how a company has acquired its value.

 

Since assets are funded through liability and equity, both the asset and liability side of the balance sheet must be equally balanced.

 

A balance sheet serves as a reference document for investors to get an idea for the financial health of an organization.

 

It is also used to determine the business liquidity and also to estimate how the company generates returns.

Assets = Liabilities + Equity

Balance Sheet Components

 

A company has two main sources of Funds for its operations namely, owner’s equity and debt capital.

Equity Capital: (Total Owner’s Equity is 350000)

It is the promoter’s money that is brought into the business for the first time. The amount of money by each shareholder represents his degree of rights with the company. 

Any increase in the number of shareholders will reduce the degree of rights held by each shareholder as the equity rights on the company is shared proportionately with all the shareholders.

The equity holder will either receive a dividend or the surplus is reserved within the company for further expansion.

Debt 

Debt may be short term or long term. 

When a debt is obtained for a period of more than 1 year, it is considered as long-term debt or non-current liability (1000000). These debts are obtained as loans from financial institutions or as debt securities like debentures. 

Similarly, when a debt is obtained for a period of less than 1 year, its termed as current liabilities (474400). They are generally obtained for payment of salaries, utility payments, trade payments, working capital loans, short term debt raised through commercial papers, unclaimed dividends, maturing long term debt etc. 

Reserves & Surplus (Reserves & Surplus is 250000)

When a company makes a profit after paying its shareholders, it is reflected in the Profit and Loss Statements as Retained Earnings. This profit is reflected in the balance sheet under Reserve & surplus head, representing the cumulative profits that the organization has earned and reserved over a period of time; these reserves are utilized when the company needs it.  Hence, the reserves and surplus are also called as Reserved Capital.

Balance sheet also represents the share premium reserve, revaluation reserve along with retained earnings.

Assets

Assets can be classified as current assets and fixed assets.

Fixed Assets (fixed asset is 342000)

The assets that are acquired by the company for creation of goods and services which would generate revenue are called fixed assets. It can be heavy machinery or software, computers, land etc… It is called Property, Plant and Equipment (PPE).

Tangible and Intangible Assets

Tangible assets are companies like cars, computers, furniture, plant and equipment while Intangible assets (305000) are company’s patents, licenses, brand value, copyrights. 

Current Assets (Current assets is 88400)

An asset which can be encashed within a period of year are classified as current assets. They are inventory, trade receivables, short term investments, short term advances, money, gold etc… 

The analysis of current assets is very important to analyze the company’s working capital situation. 

 

What is PBT in Finance

 

PBT full form in finance is Profit Before Tax.

Out of the company's gross profit, interest payments and depreciation/ amortization amount are deducted. This earnings before income tax after deducting depreciation/ amortization is referred to as EBITDA. This amount is called Profit Before Tax.

 

Profit before tax in the Balance sheet can be identified under ‘Retained Earnings’ to which the Proposed Dividend provision for taxation and interim dividend paid has to be added.

 

What is PAT in Balance Sheet

 

PAT full form in finance is Profit After Tax.

PAT is the earnings made by the company after all the taxes are paid.

The balance sheet reflects retained earnings in the “Reserve and Surplus” head under the owner’s equity section. Thus, the amount of PAT is reported in the company’s balance sheet as retained earnings for the period.

 

Frequently Asked Questions

 

What is PAT in the share market?

Profit After Tax (PAT) in the share market refers to the net profit a company has earned after deducting all its expenses, taxes, and interest. It is a key financial metric that provides an indication of a company's overall profitability. PAT is calculated by subtracting the total taxes and other non-operating expenses from the company's net income. It reflects the amount of money a company has earned for its shareholders after fulfilling all its financial obligations. Investors often look at PAT as an essential indicator of a company's financial health and performance.

Where is Profit in the Balance Sheet?

In a balance sheet, profit is not directly mentioned. Instead, it contributes to the equity section, specifically in retained earnings. Retained earnings represent the cumulative net income that a company has not distributed as dividends but retained for reinvestment. The balance sheet equation is: Assets = Liabilities + Equity, where equity includes retained earnings reflecting the company's profitability over time.

What is Profit After Tax?

Profit After Tax (PAT) is the net income a company retains after deducting all expenses, taxes, and interest. It reflects the actual profitability available to shareholders. PAT is calculated by subtracting total taxes and non-operating expenses from the company's net income. Investors often assess PAT to gauge a company's financial performance and its ability to generate returns for shareholders. On financial statements, PAT is commonly found in the income statement, representing the final earnings after all deductions.

What is PBT in banking?

Profit Before Tax (PBT) in banking refers to the total earnings a bank generates before deducting taxes and other expenses. It is a key financial metric that indicates a bank's operational profitability before considering tax obligations. PBT is crucial for evaluating a bank's core business performance.

What are assets, liabilities, and equity on a balance sheet?

Assets are what the company owns, liabilities are its obligations, and equity is the residual interest of the owners. 

The equation is Assets = Liabilities + Equity.