The balance sheet shows your assets, liabilities, and equity of the business and is a key...

The balance sheet shows your assets, liabilities, and equity of the business and is a key financial statement to analyze. If a business had cash of $200,000, accounts receivable of $500,000, a loan payable of $1,000,000, and equity of -$300,000, then what would this indicate about the business? What would be your overall thoughts on the health of this company and how could you improve its financial health? Would you want to invest in this company? Lead this company? Why or why not?

Expert Solution

Assets		Liabilities and Equity
Cash	200,000.00	Loan payable	1,000,000.00
Accounts Receivable	500,000.00	Equity	- 300,000.00

Total assets	700,000.00	Total liabilities and equity	700,000.00

The above financials indicates poor financial health of the business. The business has a negative equity balance and this means that the amount of accumulated losses has eroded the equity of the company. The negative equity usually occurs because of accumulated losses over several periods leading to negative shareholder’s equity.

A negative equity balance is a warning sign that financial health of the company is not good and that appropriate measures should be taken on an immediate basis to improve the financial health of the company.

To improve its financial health I will have to ensure that the company is back to the path of earning profits. When the company starts earning profits then its retained earnings will add onto its equity balance. To improve profitability cost control initiatives will have to be put in place to ensure that revenues exceed costs.

No, I will, at this point not want to invest in this company as its financial health is poor and hence the risk associated with investing in this company is very high. I would certainly want to lead this company and use my skills and expertise to introduce different strategic initiatives to put the company back in the path of profitability.

ekkarill92 answered 2 weeks ago

define balance sheet assets liabilities equity

define balance sheetassetsliabilitiesequity

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