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 30: Segment 2

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

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Introduction

How many times have you flipped to the back of a company's annual report and found yourself blankly staring at the pages of numbers and tables?  You know that these should be important to your investing decision, but you're not quite sure what they mean or where to begin.

In Lesson 3, we're going to take our first major step towards changing that.  Smart investors have always known that financial statements are the keys to every company.  They can warn of potential problems, and when used correctly, help determine what a business is really "worth".  An investor who understands financial statements will never have to ask "is this company a good investment?".

For every business, there are three important financial statements you must look at; the Balance Sheet, the Income Statement, and the Cash Flow Statement.  The balance sheet tells investors how much money the company has, how much it owes, and what is left for the stockholders.  The cash flow statement is like a business' checking account; it shows you where the money is spent.  The income statement is a record of the company's profitability.  It tells you how much money a corporation made (or lost).

In this lesson, we are going to learn to analyze a balance sheet.  There are two segments: in the first, we will go through a typical balance sheet and explain what each of the items means.  In the second, we will actually look at the balance sheets of several American corporations and perform basic financial calculations on them.

Grab a cup of coffee, a nearby calculator and let's begin!

Next page > How to get a copy of a company's balance sheet >  1, 2, 3, 4, 5, 6, 7,  more >>
Quiz > If you've already read this lesson, skip to the third quiz