Analyze Balance Sheet with AI

Introduction

In this tutorial, we will explore how to analyze a balance sheet using Google Bard, an AI tool, and compare its analysis with that of an experienced accountant. This guide will help you understand the key financial ratios and metrics that can be derived from a balance sheet, as well as the evolving role of accountants in the age of AI.

Chapter 1: Setting Up Google Bard

To use Google Bard for balance sheet analysis, follow these steps:

1. Create a Google Bard Account

   • Ensure you have a Gmail account.
   • Navigate to Google Bard and sign up if you haven’t already.

2. Initiate Analysis

   • Once logged in, prompt Google Bard by typing, "Can you analyze a balance sheet?"
   • Wait for Bard to confirm its capability to assist with balance sheet analysis.

Chapter 2: Inputting the Balance Sheet

Now that you have Bard set up, input the balance sheet for analysis:

1. Copy the Balance Sheet

   • Obtain the balance sheet data you want to analyze. For example, the balance sheet for "Buy It Now Inc" as of December 31, 2022.

2. Paste the Data into Bard

   • Paste the copied balance sheet directly into the input area of Google Bard.
   • Review the analysis drafts generated by Bard.

3. Review Drafts

   • Bard typically generates several drafts. Click on "View other drafts" to explore different analyses and insights.

Chapter 3: Understanding Bard's Analysis

When Bard analyzes the balance sheet, focus on the following financial ratios:

1. Liquidity Ratios

   • Current Ratio: Calculated as Current Assets / Current Liabilities.
     • Example: Bard might report a current ratio of 1.84.
   • Quick Ratio: Calculated as (Current Assets - Inventory) / Current Liabilities.
     • Example: Bard might report a quick ratio of 1.63.

2. Scoring Bard's Analysis

   • Verify Bard's calculations with your own.
   • Assign scores based on accuracy:
     • Current Ratio: If Bard's calculation is correct, score it 100.
     • Quick Ratio: If Bard's calculation is close, score it 95.

3. Solvency Ratios

   • Debt to Equity Ratio: Total Liabilities / Equity.
     • Example: Bard might report a ratio of 1.25.
   • Interest Coverage Ratio: Earnings Before Interest and Taxes (EBIT) / Interest Expense.
     • Example: Bard might report a coverage ratio of 4.

Chapter 4: Performing Your Own Analysis

Conduct your own analysis to compare with Bard’s results:

1. Calculate Ratios Manually

   • Current Ratio:

     = Current Assets / Current Liabilities
     

   • Quick Ratio:

     = (Current Assets - Inventory) / Current Liabilities
     

   • Debt to Equity Ratio:

     = Total Liabilities / Equity
     

   • Interest Coverage Ratio:

     = (Net Income + Interest + Taxes) / Interest Expense
     

2. Assign Scores

   • Based on your calculations, assign scores for each ratio.
   • Calculate the average score to determine Bard’s overall performance.

Chapter 5: Future of Accounting with AI

Reflect on the evolving role of accountants in light of AI advancements:

1. Shift from Back Office to Operations

   • Accountants will increasingly work alongside operational teams, utilizing AI-derived insights to enhance efficiency in inventory management, sales, and other functions.

2. Embrace Technological Proficiency

   • Accountants must adapt to new technologies to remain relevant. Continuous learning and embracing AI tools will be crucial for future success.

3. Leverage AI for Data Comparison

   • AI can quickly compare financial metrics against industry benchmarks, providing valuable insights that enhance decision-making.

Conclusion

This tutorial has guided you through analyzing a balance sheet using Google Bard and comparing its insights with your calculations. The evolving landscape of accounting emphasizes the importance of integrating AI into financial practices. As the role of accountants transforms, staying updated with technology will be key to thriving in the future. Consider experimenting with AI tools and continuing your education in financial analysis to enhance your skills.