Wednesday, July 13, 2011

Finance and Management - 10

In the earlier blog, we had looked at the receivables section. In today’s section we will look at the Non-current aspects of the balance sheet - the property, plant and equipment section.

Non-current assets generally include the fixed assets; these assets cannot be liquidated within an accounting period and hence they are considered non-current. Investment into these non-current assets wouldn’t exactly be a measure of the company strength, but it’s the utility of these fixed assets like - plant, machinery etc that actually enables the production of current assets. So investors really don’t pay much attention to this section except when there is a huge capital investment into the new plant or something where in the there is a potential for long term gains.

One place where people can really lose faith in the Balance sheet is due to the way the company's would handle these non-current assets. Since these assets cannot be sold in a reasonable period of time, and are carried on the balance sheet at cost regardless of the actual value - so the company can grossly inflate the numbers. This makes an investor question about its.

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