small firms, the stock value recorded in the balance sheet is determined
by company management and is not necessarily checked by outside
auditors.
Debtors Debtors are customers owing money to the company for goods or
services supplied as of the balance sheet date. A high level of debt is
clearly bad for the operation of any firm. It not only increases the need
for working capital, it increases the financial risk to company operation.
Cash & Liquid Assets Cash and liquid assets include monies held in current and short term
deposit accounts.
Other Current Assets Other current assets include quoted company shares, tax reserve
certificates, other marketable securities, monies owed by group
companies and any other assets not listed separately.
Current liabilities generally include monies owed by
creditors falling due within one year. This includes short
term loans from banks or shareholders, additional bank
overdrafts, advance payments made by the firm, monies
owed by the firm to parent or subsidiary firms (ie group
Current Liabilities companies), taxation
Trade Creditors Trade creditors are the firm's trade suppliers which the firm owes
monies to for goods received. These outstanding funds are payable
within one year. This is money owed by the company as of the balance
sheet date.
Bank Loans & Overdrafts These are short term loans owed by the company falling due within
one year such as bank loans and overdrafts from additional outside
sources.
Other Current Liabilities Total of all other liabilities falling due within one year including VAT, social
security, etc.
These totals are the result of adding and subtracting the
various sections previously detailed and are measures
Balance Sheet Totals of the net financial position of the firm.
Working Capital Working capital is the balance of current assets minus current liabilities.
It is a measure of the short term funds involved in a firm's operation.
Net Assets Net assets = (total fixed assets + total current assets) - total current
liabilities. Total net assets = the balance sheet total and is equivalent
to capital employed.
Capital Employed Capital employed = total shareholder funds + long term loans + any
other long term liabilities. Capital employed is the money directly used
to finance the business. Keep in mind that in order for the balance sheet
to "balance," capital employed needs to equal net assets.
The Company finances its operations over the long term
using a mixture of loans, share capital and retained
Long Term Liabilities earnings.
48 | Chapter Five Terms & Ratios
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