Analyzing a Balance Sheet
The balance sheet lets you know a company's assets (things that are worth money), liabilities (debts that are owed), and net worth (the difference between the two). It can actually tell you so much more! By combining the balance sheet with other financial statements, you can calculate ROE, ROA, and a lot of other ratios that we'll teach you how to perform.
Table of Contents for Understanding the Balance Sheet
Balance sheets can be complicated but this table of contents will walk you through the understanding the balance sheet investing lesson so you'll be able to feel more confident when facing an annual report or small business financial statements.
Balance sheets can be complicated but this table of contents will walk you through the understanding the balance sheet investing lesson so you'll be able to feel more confident when facing an annual report or small business financial statements.
Investing Lesson 3: Analyzing a Balance Sheet
Learning to read a balance sheet is important because it can help you understand the risk involved in a company. The balance sheet shows a company's debt level, net worth, and can help calculate important financial ratios.
Learning to read a balance sheet is important because it can help you understand the risk involved in a company. The balance sheet shows a company's debt level, net worth, and can help calculate important financial ratios.
How to Get a Company's Annual Report, 10K, and Other Financial Information
When analyzing a balance sheet, you will need a copy of a company's annual report, 10K, and 10q. These filings, sent into the SEC, provide you information on a company's health, management, and other information that's important to know as an investor.
When analyzing a balance sheet, you will need a copy of a company's annual report, 10K, and 10q. These filings, sent into the SEC, provide you information on a company's health, management, and other information that's important to know as an investor.
What Is a Balance Sheet?
What is a balance sheet? A balance sheet is the record of a company's assets and liabilities.
What is a balance sheet? A balance sheet is the record of a company's assets and liabilities.
Assets, Liabilities and Shareholder Equity on the Balance Sheet
The best way to understand the balance sheet is to see an actual balance sheet and walk through it line by line. Here is a real example that we've taken from the Coca-Cola financial statements. It shows oyu assets, liabilities, and shareholder equity.
The best way to understand the balance sheet is to see an actual balance sheet and walk through it line by line. Here is a real example that we've taken from the Coca-Cola financial statements. It shows oyu assets, liabilities, and shareholder equity.
Current Assets on the Balance Sheet
Cash and cash equivalents and short term investments are carried under current assets on the balance sheet.
Cash and cash equivalents and short term investments are carried under current assets on the balance sheet.
Accounts Receivables
Accounts receivables represents money owed to a business by its customers. The nature of accounts receivable and the portion they represent of current assets on the balance sheet depends upon the industry in which a company operates.
Accounts receivables represents money owed to a business by its customers. The nature of accounts receivable and the portion they represent of current assets on the balance sheet depends upon the industry in which a company operates.
Receivable Turns
To calculate receivable turns, divide credit sales by the average receivables for the period.
To calculate receivable turns, divide credit sales by the average receivables for the period.
Inventory on the Balance Sheet
Inventory carried on the balance sheet consists of goods or merchandise a company has but may not yet have sold to customers. When managing inventories you should try to keep them as low as possible to increase profits and return on equity.
Inventory carried on the balance sheet consists of goods or merchandise a company has but may not yet have sold to customers. When managing inventories you should try to keep them as low as possible to increase profits and return on equity.
Inventory Turns
Inventory turns and inventory turnover can be calculated for any company using the information found on the income statement and balance sheet.
Inventory turns and inventory turnover can be calculated for any company using the information found on the income statement and balance sheet.
McDonald's vs. Wendy's - A Case Study In Inventory on the Balance Sheet
Using McDonald's and Wendy's restaurants as an example of inventory turn, we can calculate the real world inventory turnover ratio to show you how efficiently both restaurant chains manage their inventory.
Using McDonald's and Wendy's restaurants as an example of inventory turn, we can calculate the real world inventory turnover ratio to show you how efficiently both restaurant chains manage their inventory.
Prepaid Expenses and Other Current Assets
Prepaid expenses on the balance sheet represent a current asset because the company still has the right to receive the product or service for which it has paid.
Prepaid expenses on the balance sheet represent a current asset because the company still has the right to receive the product or service for which it has paid.
Current Liabilities
Current liabilities on the balance sheet represent all of the liabilities or debts a company owes for the next twelve months. Current liabilities are an important part of measuring a company's liquidity position.
Current liabilities on the balance sheet represent all of the liabilities or debts a company owes for the next twelve months. Current liabilities are an important part of measuring a company's liquidity position.
Working Capital
Working capital on the balance sheet is the difference between current assets and current liabilities. The reason working capital is so important is because it lets you know the resources management has on hand to pay day-to-day bills and conduct operations. Some companies, such as Wal-Mart or other restaurants, can actually have negative working capital.
Working capital on the balance sheet is the difference between current assets and current liabilities. The reason working capital is so important is because it lets you know the resources management has on hand to pay day-to-day bills and conduct operations. Some companies, such as Wal-Mart or other restaurants, can actually have negative working capital.
Working Capital Per Dollar of Sales
Working capital per dollar of sales is a financial ratio that can tell you how much working capital a business needs for ever one dollar of revenue it generates.
Working capital per dollar of sales is a financial ratio that can tell you how much working capital a business needs for ever one dollar of revenue it generates.
Negative Working Capital
Negative working capital is possible for companies with high inventory turnover.
Negative working capital is possible for companies with high inventory turnover.
The Current Ratio
The current ratio is a test of a company's liquidity. It can be calculated by dividing current assets by current liabilities on the balance sheet.
The current ratio is a test of a company's liquidity. It can be calculated by dividing current assets by current liabilities on the balance sheet.
Quick Test Ratio
The quick test ratio is the strongest test of a company's liquidity and is an extreme measure of a company's working capital.
The quick test ratio is the strongest test of a company's liquidity and is an extreme measure of a company's working capital.
Long Term Investments
Long term investments and carrying values on the balance sheet are easy to understand. Both long term investments and long term assets represent assets owned by a company that may not be easily converted to cash but still have value.
Long term investments and carrying values on the balance sheet are easy to understand. Both long term investments and long term assets represent assets owned by a company that may not be easily converted to cash but still have value.
Property, Plant and Equipment
Property, plant and equipment on the balance sheet represents fixed assets purchased for a company's operations such as factories, machines, computers, and other necessary assets.
Property, plant and equipment on the balance sheet represents fixed assets purchased for a company's operations such as factories, machines, computers, and other necessary assets.
Intangible Assets
Intangible assets on the balance sheet represent items such as patents, rents, royalties, and other assets that don't have physical form but still have value. Intangible assets are an important part of companies such as pharmaceuticals, which rely on drug patents to make money.
Intangible assets on the balance sheet represent items such as patents, rents, royalties, and other assets that don't have physical form but still have value. Intangible assets are an important part of companies such as pharmaceuticals, which rely on drug patents to make money.
Goodwill on the Balance Sheet
Accounting goodwill is the premium over book value a company pays during an acquisition. It goes on the balance sheet and is subject to periodic tests for goodwill impairment.
Accounting goodwill is the premium over book value a company pays during an acquisition. It goes on the balance sheet and is subject to periodic tests for goodwill impairment.
Deferred Long-Term Asset Charges
On a balance sheet, deferred long term asset charges are used to spread out asset charges over longer periods of time, as opposed to having them affect the company's earnings in a single quarter or year.
On a balance sheet, deferred long term asset charges are used to spread out asset charges over longer periods of time, as opposed to having them affect the company's earnings in a single quarter or year.
Long Term Debt and the Debt to Equity Ratio on the Balance Sheet
Long term debt and the debt to equity ratio are important indications of the financial stability of a company. They can be found using the balance sheet.
Long term debt and the debt to equity ratio are important indications of the financial stability of a company. They can be found using the balance sheet.
Other Liabilities
Other liabilities on the balance sheet represent items such as accrued expenses, sales tax payable, or other debts.
Other liabilities on the balance sheet represent items such as accrued expenses, sales tax payable, or other debts.
Minority Interest on the Balance Sheet
Minority Interest is found on the balance sheet under Liabilities. It is the value of the minority shareholders' holdings in a company's subsidiary or affiliate.
Minority Interest is found on the balance sheet under Liabilities. It is the value of the minority shareholders' holdings in a company's subsidiary or affiliate.
Shareholder Equity
Shareholder equity is the difference between total assets and total liabilities on the balance sheet.
Shareholder equity is the difference between total assets and total liabilities on the balance sheet.
Book Value
Book Value and Net Tangible Assets are the excess of assets excluding intangible items subtracted by total liabilities. Book value can be calculated using the balance sheet.
Book Value and Net Tangible Assets are the excess of assets excluding intangible items subtracted by total liabilities. Book value can be calculated using the balance sheet.
Common, Preferred, and Convertible Shares
Common Preferred and Convertible Shares are carried on the balance sheet. Learn more in Investing Lesson 3
Common Preferred and Convertible Shares are carried on the balance sheet. Learn more in Investing Lesson 3
Capital Surplus and Reserves
Capital surplus and proprietorship reserves on the balance sheet are important to understanding the strength of a company, whether analyzing a small business or researching a stock.
Capital surplus and proprietorship reserves on the balance sheet are important to understanding the strength of a company, whether analyzing a small business or researching a stock.
Treasury Stock
Treasury stock is listed under shareholder equity on the balance sheet. It represents the stock a company has issued and subsequently reacquired.
Treasury stock is listed under shareholder equity on the balance sheet. It represents the stock a company has issued and subsequently reacquired.
Retained Earnings on the Balance Sheet
Retained earnings are the profits a company has reinvested in itself. Retained earnings are carder on the balance sheet under Shareholder Equity.
Retained earnings are the profits a company has reinvested in itself. Retained earnings are carder on the balance sheet under Shareholder Equity.
Formulas and Calculations for Analyzing a Balance Sheet
Various formulas and calculations used to analyze a balance sheet including financial ratios such as receivable turnover and working capital per dollar of sales and current ratio and debt to equity ratio are important for investors attempting to understanding how well a business is performing.
Various formulas and calculations used to analyze a balance sheet including financial ratios such as receivable turnover and working capital per dollar of sales and current ratio and debt to equity ratio are important for investors attempting to understanding how well a business is performing.
Putting It All Together
The balance sheet financial ratios are important parts of valuing a stock or analyzing a small business.
The balance sheet financial ratios are important parts of valuing a stock or analyzing a small business.
Analyzing a Sample Balance Sheet - Microsoft
To understand the balance sheet it is easier to analyze a real company. In this example, we do balance sheet analysis on Microsoft.
To understand the balance sheet it is easier to analyze a real company. In this example, we do balance sheet analysis on Microsoft.
Analyzing a Sample Balance Sheet Part II - MIcrosoft
This is the second part of the Microsoft balance sheet analysis.
This is the second part of the Microsoft balance sheet analysis.
Simon Transportation Services
Analyzing the balance sheet of Simon Transportation Services could have warned investors of a looming bankruptcy.
Analyzing the balance sheet of Simon Transportation Services could have warned investors of a looming bankruptcy.
Epilogue for Simon Transportation
Analyzing the balance sheet of Simon Transportation Services could have warned investors of a looming bankruptcy.
Analyzing the balance sheet of Simon Transportation Services could have warned investors of a looming bankruptcy.