More of this Feature • Part 1: Lesson 3 Main • Part 2: How to Get Statements • Part 3: What's a Balance Sheet • Part 4: Typical Balance Sheet • Part 5: Current Assets • Part 6: Receivables • Part 7: Receivable Turns • Part 8: Inventory • Part 9: Inventory Turns • Part 10: Inventory Example • Part 11: Prepaid Expenses • Part 12: Current Liabilities • Part 13: Working Capital • Part 14: WC Per Dollar of Sales • Part 15: Negative Work. Cap • Part 16: Current Ratio • Part 17: Quick Ratio • Part 18: Long Term Investment • Part 19: Property, Plant, Equip. • Part 20: Intangible Assets • Part 21: Goodwill • Part 22: Deferred Charges • Part 23: Debt, Debt to Equity • Part 24: Other Liabilities • Part 25: Minority Interest • Part 26: Shareholder Equity • Part 27: Book Value • Part 28: Com. & Pref. Shares • Part 29: Cap. Surplus, Reserve • Part 30: Treasury Stock • Part 31: Retained Earnings • Part 32: Formula & Calculations • Part 33: Putting it all Together • Part 34: Segment 2

Join the Discussion "My employer gives me the option of having money taken out of my paycheck and putting it in an investment.  Is this a good idea?" Read More...

Related Resources • Investing Lesson 1 • Investing Lesson 2 • Investing Lesson 3 • More Investing Lessons

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Formulas & Calculations for the Balance Sheet

You've learned how to analyze a balance sheet!  In Segment 2 we are going to work through the balance sheets of a few American companies.  Here is a reference guide for all of the calculations you've learned so far.  You should memorize these as soon as possible; they are priceless investment tools for the rest of your life.

Tests of a Company's Financial Strength and Liquidity:

Working Capital: Current Assets - Current Liabilities
Working Capital per Dollar of Sales: Working Capital ÷ Total Sales¹
Current Ratio: Current Assets ÷ Current Liabilities
Quick / Acid Test / Current Ratio: Current Assets minus inventory (called "Quick Assets) ÷ Current Liabilities
Debt to Equity Ratio: Total Liabilities ÷ Shareholders' Equity

Tests of a Company's Efficiency:

Receivable Turnover: Net Credit Sales¹ ÷ Average Net Receivables for the Period
Average Age of Receivables: Numbers of days in period ÷ Receivable Turnover
Inventory Turnover: Cost of Goods Sold¹ ÷ Average Inventory for the Period
Number of Days for Inventory to Turn: Number of days in Period ÷ Inventory Turnover

¹These can be found on the income statement, not the balance sheet.

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