Hybrid Trusts Explained
Assets and Liabilities Statement
The Assets and Liabilities Statement (A and L Statement) is a type of report that is presented for decision-making purposes. This particular report presents the financial standing of a business owner as of a certain point in time. It specifically displays the market values of the owner’s resources (Assets) and obligations (Liabilities). Assets and liabilities statements are one of the most common forms of accountant’s declaration letters used in Australia. This document is used by and for achieving many objectives. In essence the net assets show the liquidity of an entity or an individual and prospective stakeholders request to see this information before they decide to do business with the individual.
What are the uses of an Assets and Liabilities Statement?
The most common uses of the Assets and Liabilities Statement are for acquisition of lease for commercial purposes, business visa application, application of different types of loans, business acquisitions, Sale of business and so on.
Assets and Liabilities Statement provides insights to commercial property owners, government agencies, or potential stakeholders about the financial capabilities and creditworthiness of a business owner.
Commercial property owners would look into the Assets and Liability Statements to evaluate if the monthly rent payments will be paid as they become due in case of less than favorable business circumstances of the new venture. Likewise with potential lenders, an Assets and Liabilities Statement would give an understanding if an applicant can meet their obligations in time so to know if they should approve the application for the loan.
One of the requirements to prove one’s eligibility for business visa is the provision of evidence of adequate financial resources and also to prove the net assets requirement in case of s transition to a PR application visa. Hence, it is in here too that an Assets and Liabilities Statement can serve another purpose as the evidence to prove a good financial standing and a profitable business.
Many prospective partners looking to join with an existing business and franchisors looking for a prospective franchisor may request to see an assets and liabilities statement to ensure they are talking to the right kind of individual with the required financial standing.
What makes up an attractive Assets and Liabilities Statement?
An attractive Assets and Liability Statement plays an important role to achieve a favorable outcome when applying for lease, business visa, or loans. The following attributes are what makes an A and L Statement attractive:
- High Solvency Ratios
The business owner’s ability to meet its long-term obligations is measured by this. Usually, this ratio is used by the prospective business lenders. The most commonly used ratio is as follows:
The DEBT-TO-ASSETS RATIO: (Total Debts ÷ Total Assets)
A lower ratio (less than 1.0), indicates that the company owner or an individual can pay off it’s debts (especially the principal amount) with his available assets.
- High Liquidity Ratios
These ratios are used to evaluate the ability to pay the short-term obligations and to what extent. The most commonly used ratio is the following:
The CURRENT RATIO: (Total Current Assets ÷ Total Current Liabilities)
The ability to pay off its obligations that are due within one year can be measured through this. The higher the ratio (greater than 1.0), the better.
Why do some stakeholders have a mandatory requirement to provide the A & L statement?
A detailed and complete Assets and Liability Statement avoids complexity in the decision-making process. An assets and liability statement is also prepared where a sophisticated investor certificate is based on a net assets test. Given that an accountant would verify the source documents this takes the burden off decision-makers and give them the confidence to approve the commercial lease, business visa application, and/or loan applications. If you do need an Assets and Liability statement, we have prepared numerous such statements in the past.
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