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Balance Sheet Analysis

Every Limited Company prepares an annual report on its accounts and state of affairs. The annual report comprises : -
Notice of Annual General Meeting
Chairman's statement
Director's Report
Auditors Report
Balance Sheet
Profit and Loss Account
Notes on Accounts.
Understanding or reading a balance sheet implies analysis and study of the balance sheet i.e., financial accounts of a company, with a view to knowing about the company's financial health, its intrinsic value and hidden risks or strengths. It is reading the unwritten. Reading a balance sheet is an art as well as a science and its perfection comes only when science and art both are blended. The science is study and analysis of balance sheet items and profit and loss account through various techniques including ratio analysis and the art is taking out inferences and decisions on the basis of the former.
Notice of Annual General Meeting (AGM): - All special resolutions that are sought to be passed at AGM require explanatory statement. These are drafted in non-legal language giving the rationale or background to special resolutions sought to be passed. Investors should go through the explanatory statement carefully.
Director's Report: - Director's report is a report submitted by the directors of a company to its shareholders, appraising them of the performance of the company under its direction. It is an exercise of self-evaluation. Director's report expresses the opinion of directors on the state of the company, explains performance and the financial results, discusses company's plans for expansion, diversification or modernization, tells about appropriation of profits, elaborates company's future prospects and plans for investments. It is a synopsis of the company's activities during the year and during the interim period between the date of the balance sheet and date of the annual report. Director's report should take the investors into confidence by providing useful insights into the...