The

balance sheet discloses what an entity owns and what it owes at a specific point in time. It is also referred to as the statement of financial position. The financial position of an entity is described in terms of its assets, liabilities and equity.

 Assets

defined as resources controlled by the enterprise as a result of past events and from which future economic benefits are expected to flow to the enterprise. Assets should only be recognized in the financial statements if: a. It is probable that any future economic benefit associated with the item will flow to the entity. b. The item has a cost or value that can be measured with reliability. (Exhibit-02)

Liabilities are technically defined as probable future sacrifices of economic benefits arising from present obligations of an entity to transfer assets or provide services to other entities in the future as a result of past transactions or events. Alternatively, a liability can be described as: a. Amounts received but which have not been reported as revenues or income on an income statement and / or will have to be repaid. b. Amounts that have been reported as expenses on an income statement but which have not been paid.(exhibit 03)

 Equity

is the residual interest in the assets of an entity after deducting its liability, also referred to as net asset value: Equity = Assets Liability (exhibit 04)

When assets, liabilities and equity are listed in a single column, that is report format. (exhibit 05) The account format follows the pattern of the traditional general ledger accounts, with assets at the left and liabilities and equity at the right of a central dividing line. The report format is most commonly preferred and used by financial statement presenters. Grouping together the various classes of assets and liabilities, therefore, results in a balance sheet format described as a classified balance sheet. (exhibit 07)

method of financial statement analysis in which each entry for each of the three major categories of accounts (assets, liabilities and equities) in a balance sheet is represented as a proportion of the total account. The main advantages of vertical analysis is that the balance sheets of businesses of all sizes can easily be compared. It also makes it easy to see relative annual changes within one business.

 For

example, suppose XYZ Corp. has three assets: cash and cash equivalents (worth $3 million), inventory (worth $8 million), and property (worth $9 million). If vertical analysis is used, the asset column will look like: Cash and cash equivalents: 15% Inventory: 40% Property: 45%

Horizontal analysis looks at amounts on the financial statements over the past years. For example, the amount of cash reported on the balance sheet at December 31 of 2006, 2005, 2004, 2003, and 2002 will be expressed as a percentage of the December 31, 2002 amount. Instead of dollar amounts you might see 134, 125, 110, 103, and 100. This shows that the amount of cash at the end of 2006 is 134% of the amount it was at the end of 2002. The same analysis will be done for each item on the balance sheet and for each item on the income statement. This allows you to see how each item has changed in relationship to the changes in other items. Horizontal analysis is also referred to as trend analysis. Vertical analysis, horizontal analysis and financial ratios are part of financial statement analysis.

type of analysis an investor, analyst or portfolio manager may conduct on a company in relation to that company's industry or industry peers. The analysis compares one company against the industry it operates within, or directly against certain competitors within the same industry, in an attempt to discover the best of the breed.

When conducting a cross-sectional analysis, the analyst seeks to identify, by using comparative metrics, the valuation, debt-load, future outlook and/or operational efficiency of the target company. This allows the analyst to evaluate the target company's efficiency in these areas, and to make the best investment choice among a group of competitors or the industry as a whole. When comparing the target firm to competitors, the analyst must be careful to consider the unique operating characteristics of each company and how that will affect any comparative metrics used.