How the Balance sheet is made even?

When you estimate Balance sheet for current and future years, it is very usual that the bottom lines do not equal. You do not, however need to correct the imbalance yourself; the model makes it for you.

Let us see how the correction is made in both situations, i.e when assets are bigger or when liabilities are bigger.

1. Assets are estimated to be bigger

There are three parameters that you have to input:

1. Minimum level of interest bearing long-term liabilities
2. Minimum level of interest bearing current liabilities
3. Share of debt allocated to long-term (interest bearing) liabilities

You may also leave the first two parameters to be zero. In this case the company do not necessary have any interest bearing debt at all. If you leave the third parameter to zero, all the generated debt are allocated to interest bearing current liabilities.

At first, the model calculates the difference of assets and liabilities. In this phase your minimum level requirements have already been taken into account. Then the model simply allocates the balance sheet differences to long-term and current liabilities according to what you have determined the share to be.

Here is an example what happens when assets are estimated to be bigger. You do not actually see this happening, it is just the logic behind the model.

2. Liabilities are estimated to be bigger

When liabilities are bigger than assets, the process is simpler. The balance sheet difference is totally allocated to Generated interest bearing financial assets. They are an item in Total financial assets.

Here is an example what happens when assets are estimated to be bigger. You do not acctually see this happening, it is just the logic behind the model.

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