Key Management Ratios: The Clearest Guide to the Critical Numbers That Drive Your Business, Fourth Edition

Chapter 3. Balance sheet terms

Introduction • The terms used

	It sounds extraordinary but it’s a fact that balance sheets can make fascinating reading.
	--MARY ARCHER (1989)

Introduction

In order to understand and use business ratios we must be clear about what it is that is being measured. Definitions and terms used must be precise and robust. We will define four terms each from the balance sheet and the profit and loss account. These are critical values in the accounts that we come across all the time. In any discussion of company affairs, these terms turn up again and again, under many different guises and often with different names. The five-box balance sheet layout will assist us greatly in this section.

The terms used

The four terms used in the ...