Analysis of balance sheet

The balance sheet provides information on what the company owns (Assets),
what it owes (liabilities), and the value of the business to its stockholders as of a
specific date. It highlights the financial condition of a company and is an
integral part of the financial statements. The three important components in the
balance sheet that we have chosen which are important to the investors for
making investing decisions are total current assets, total current liabilities and
total Debt. Current assets are those assets which will be utilized within a year or
turned into cash and current liabilities are those liabilities which will become
due within a year or have to be covered within the same time frame. The base
company selected is Tata Consultancy Services (TCS).
A ratio analysis is done using the above mentioned components which
influence investor decision making. The two ratios selected are :
Current Ratio - Current ratio is an important ratio that is used by
investors to make investing decisions. It compares the total current
assets of a company to its total current liabilities.
Current Ratio = Current Assets/Current Liabilities
The higher the current ratio, the better a company is for investing.
Preferred current ratio is 2 to 1, which implies that a company has at
least twice as many current assets as current liabilities. It reveals how
a company can cover its current liabilities.
year
2013/14
2014/15
2015/16

Current assets
42897.69
48813
63067.39

Current liabilities
15670.31
20318.24
21975.51

Current ratio
2.73
2.4
2.86

In the year 2013/14 the companys current ratio stands at 2.73 which
shows a good sign for investing, but in the year 2014/15 it slips down
to 2.4 which is not favourable but the company still has twice as many
current assets as current liabilities. In the year 2015/16 the companys
current ratio stands at 2.86 which shows a significant rise and a
favourable sign for investment.

Current Assets

 Debts to assets ratio It compares the debt of a company to its assets.

Debt to assets ratio = Total liabilities/Total assets
It is advisable not to invest in companies whose debt exceeds fifty
percent of the assets. Lower the debt to assets ratio the better a
company is for investing.
year
2013/14
2014/115
2015/2016

liability
17943.20
23026.12
24023.82

Assets
67137.78
73660.83
89384.38

Debt to assets
ratio
0.27
0.31
0.27

Here, TCSs debt to asset ratio initially stays at 0.27 , 0.31 and then it
decreases to 0.27. As lower the debts to assets ratio the better a
company is for investment, 0.27 shows that the debt is only 27% of
the total assets.