What are the 8 Balance Sheet Yellow Flags? | Brian Stoffel posted on the topic | LinkedIn (2024)

Some helpful tips on reading balance sheets

“….good reasons to violate…” is odd terminology 😉. Perhaps you mean that your yellow flags could in fact be red or green! Perhaps with the exception of negative retained earnings (aka losses), any balance sheet figure could be reflective of good or bad performance. Even then, planned and funded (by capital) start up losses need not necessarily be concerning.I’d suggest 1. beware taking shortcuts in analysis; 2. always look to reconcile cash and profits and understand the differences (which can reveal dodgy accounting); 3. recognise that businesses that are on top of their numbers will rarely use statutory formats et al in their day to day management of performance and control of the business.

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Knowing Balancesheet more with Brian Stoffel

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good for fin planning

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As companies post their year end balance sheets here is a helpful list of things to look for. #leadership #management #technology #informationsecurity #ciso #riskmanagement #security #cybersecurity #privacy

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8 Balance Sheet Yellow Flags: by Brian Stoffel1: CASH & CASH EQUIVALENTS → Less Than Total Debt 🇳🇺2: ACCOUNTS RECEIVABLE → Rising Faster Than Revenue 🇳🇺3: INVENTORY → Rising Faster Than Profits 🇳🇺4: GOODWILL → More Than 50% of Total Assets 🇳🇺5: INTANGIBLE ASSETS → More Than 50% of Total Assets 🇳🇺6: SHORT-TERM DEBT & LONG-TERM DEBT → More Than Cash 🇳🇺7: PREFERRED STOCK → There Shouldn’t Be Any 🇳🇺8: RETAINED EARNINGS → A Negative Number 🇳🇺IMPORTANT: I labeled these as "Yellow" flags for a reason.Lots of companies have good reasons to violate these balance sheet rules of thumb.Accounting is filled with nuance.-----------------------------------------------------------------------------P.S. What about yellow flags on the income / cash flow statements?We'll cover them in: Financial Statements Explained SimplyI've run the course for two years and it has a Net Promoter Score (NPS) of 100!

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𝗕𝗮𝗹𝗮𝗻𝗰𝗲 𝘀𝗵𝗲𝗲𝘁 𝗽𝗿𝗼𝗷𝗲𝗰𝘁𝗶𝗼𝗻Balancing the books is no simple task, but with the right approach, you can project your Balance Sheet with confidence. Here are some essential steps to keep in mind:→ Build supporting sheets, CAPEX (purchase value, depreciation, carrying value), NWC sheet (AR, Inventories, AP, Other current assets and liabilities), Debt sheet (current and new loan schedules)→ All items related to fixed assets should be imported from the 'CAPEX' sheet.→ Shift your attention to current assets. The sources for these are twofold: inventories, account receivables, and other current assets are derived from the net working capital sheet.→ The cash position is pulled from the 'Projected Cash Flow Statements' sheet.→ A crucial part of the balance sheet projection is the calculation of equity. The formula to determine this is by taking the equity from the previous period, adding the net income (or subtracting the net loss) for the current period, accounting for any dividends, and then adjusting for any increase in share equity.→ All long-term liabilities, as well as financial liabilities, should be imported from the 'Debt' sheet.→Trade payables and other current liabilities must be imported from the 'net working capital' sheet.Balancing your Balance Sheet requires diligence and precision. By following these steps and using a well-structured financial model, you can maintain financial clarity.Credit to Bojan Radojicic for this fantastic infographic.____________________________📌Let's learn finance modeling together. Build a model → Ensure sustainable growth → Increase your income. Start today 👇https://lnkd.in/dZD5QNfh #BalanceSheet #FinancialProjection #FinancialPlanning

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Balance sheet vs income statement 1️⃣ Definition:- Balance Sheet: A snapshot of a company's financial position at a specific point in time.- Income Statement: A summary of a company's revenues, expenses, and profits over a given period.2️⃣ Main Components:- Balance Sheet: Assets, Liabilities, Equity.- Income Statement: Revenues, Expenses, Net Income.3️⃣ Purpose:- Balance Sheet: Shows the financial health and solvency of a company.- Income Statement: Reveals a company's profitability during a specific time frame.4️⃣ Timeframe:- Balance Sheet: A specific date (e.g., end of a quarter or year).- Income Statement: A specific period (e.g., monthly, quarterly, or annually).5️⃣ Focus:- Balance Sheet: On the company's financial position at a given moment.- Income Statement: On a company's performance over time.6️⃣ Primary Elements:- Balance Sheet: Assets (current and non-current), Liabilities (current and non-current), Equity.- Income Statement: Revenues (sales, interest income, etc.), Expenses (cost of goods sold, operating expenses, etc.), Net Income.7️⃣ Reporting Frequency:- Balance Sheet: Typically reported quarterly and annually.- Income Statement: Can be reported monthly, quarterly, and annually.8️⃣ Regulatory Requirements:- Balance Sheet: Required for financial transparency and often subject to regulatory scrutiny.- Income Statement: Essential for tax reporting and external financial disclosures.9️⃣ Example Items:- Balance Sheet: Cash, Accounts Receivable, Long-Term Debt, Common Stock.- Income Statement: Sales Revenue, Cost of Goods Sold, Operating Expenses, Net Profit. Let's keep learning together!#Finance #BalanceSheet #IncomeStatement #FinancialEducation

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BALANCE SHEET RATIOS❇️Balance sheet ratios show how different items on a company's balance sheet relate to each other❇️These ratios are used to assess the expected returns, the risk associated, financial stability✅Examples of these ratios are debt-to-equity ratio (financial), cash ratio, current ratio, quick ratio (liquidity), accounts receivable turnover, accounts payable turnover, and inventory turnover ratio (efficiency)❗️Balance sheet ratios can be classified into the following categories:1️⃣Efficiency Ratios- Inventory Turnover Ratio- Receivable Turnover Ratio- Payables Turnover Ratio- Net Working Capital Turnover Ratio- Asset Turnover Ratio2️⃣Liquidity Ratio- Current Ratio- Quick Ratio- Cash Ratio3️⃣Solvency Ratio- Debt to Equity Ratio- Debt to Asset Ratio- Equity Ratio4️⃣Profitability Ratios- Return on Asset- Return on Equity—————————#finance #financialratios #accounting

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What Are Balance Sheet Ratios?After understanding balance sheet analysis ratios, and how to analyse the balance sheet, it’s time to understand ratio analysis all formulas:Employing MoneyThe amount left over after deducting a company’s entire current liabilities from its total current assets is referred to as working capital. Cash and assets that are anticipated to generate cash within a year are included in current assets in the majority of sectors. Current liabilities are debts that are due in the near future.)The working capital calculation formula is as follows:Current Assets – Current Liabilities = Working CapitalActual RatioThe whole amount of a company’s current assets divided by the total amount of its current liabilities is known as the current ratio, also known as the working capital ratio. The current ratio is expressed as a formula as follows:Current ratio is equal to Current Liabilities / Current Assets.In general, the corporation is more likely to be able to pay its current liabilities when they become due the higher the ratio of current assets to current liabilities.(Acid Test) Quick RatioThe acid test ratio is another name for the quick ratio. Due to the exclusion of a company’s inventory and pre-paid expenses, the fast ratio is more cautious than the current ratio. Inventory and pre-paid expenses (cannot be promptly converted into cash, it is anticipated.)Therefore, the whole amount of the company’s current liabilities is split simply by the amount of the company’s “quick” assets, which include cash, cash equivalents, short-term investments, and accounts receivable. The fast ratio is seen to be a stronger measure of a company’s capacity to pay its debts when they become due for companies with inventory (manufacturers, merchants, and distributors).