FINANCIAL ANALYSIS #2 Asset as the Base Percentage @THINKTANKLIKEBEES

Summary

This video explains how to analyze a balance sheet when the exact amount of assets is not given, but capital and liabilities are known as percentages. The key concept is that the total assets are the base (100%), and by using the given percentages for capital and liabilities, the missing values can be calculated. Through two examples, the process of dividing known values by their percentages to compute total assets, and then multiplying to find liabilities or capital, is demonstrated. This method provides a straightforward way to analyze balance sheets and determine missing financial data.

Takeaways

• 😀 The balance sheet consists of three main components: Assets, Liabilities, and Capital.
• 📊 Assets serve as the base for calculations, always representing 100%.
• 🔍 Understanding the percentage relationships between liabilities and capital is crucial for analysis.
• 🧮 If liabilities are known as a percentage of assets, you can derive capital by calculating the remaining percentage.
• 📈 Example calculations illustrate how to find total assets based on known capital and liabilities percentages.
• 🛠️ You can compute the missing values side by side, as long as one component (assets, liabilities, or capital) is known.
• 🧾 In Example 1, given a capital of 300,000 and liabilities as 40%, the calculated assets amount to 576,923.08.
• 💡 In Example 2, knowing liabilities are 650,000 and capital is 29%, assets calculate to 915,492.96.
• 💵 The methodology allows for easy assessment of financial health based on partial data.
• 📅 Understanding these calculations can enhance financial literacy and decision-making in business contexts.

Q & A

What is the base for analyzing a balance sheet?

The base for analyzing a balance sheet is always the total assets, which is considered 100%.

How do you determine the percentage of capital when liabilities are known?

To determine the percentage of capital, subtract the percentage of liabilities from 100%. For example, if liabilities are 40%, then capital is 100% - 40% = 60%.

If the capital amount is $300,000 and it represents 52% of total assets, how do you find the total assets?

You divide the capital amount by its percentage: $300,000 / 0.52 = $576,923.

How can you compute the amount of liabilities if total assets are known?

Multiply the total assets by the percentage of liabilities. For example, if total assets are $576,923 and liabilities are 48%, then liabilities = $576,923 * 0.48 = $276,923.

What is the relationship between assets, liabilities, and capital?

Assets equal liabilities plus capital. This relationship is fundamental in accounting and is represented by the equation: Assets = Liabilities + Capital.

In the second example, if liabilities are $650,000 and represent 29% of assets, how do you calculate total assets?

First, determine the percentage of capital by subtracting liabilities percentage from 100%. So, 100% - 29% = 71%. Then, calculate total assets: $650,000 / 0.71 = $915,492.

What is the formula to calculate the amount of capital when liabilities and the percentage of capital are known?

The amount of capital can be calculated by multiplying the total assets by the percentage of capital. For example, total assets of $915,492 multiplied by 29% gives capital of $265,492.

How can understanding the balance sheet help in financial analysis?

Understanding the balance sheet helps in assessing a company's financial health by analyzing its assets, liabilities, and capital structure, which are crucial for decision-making.

Why is it important to know the percentages of assets, liabilities, and capital?

Knowing these percentages allows for better financial planning and analysis, as it provides insight into how a company is financed and its financial stability.

What does it mean if liabilities exceed assets?

If liabilities exceed assets, it indicates financial distress and could signal potential bankruptcy, as the company would not be able to cover its obligations.