The Three Parts of the Balance SheetEvery balance sheet is divided into three main parts - assets, liabilities, and shareholder equity.
- Assets are anything that have value. Your house, car, checking account, and the antique china set your grandma gave you are all assets. Companies figure up the dollar value of everything they own and put it under the asset side of the balance sheet.
- Liabilities are the opposite of assets. They are anything that costs a company money. Liabilities include monthly rent payments, utility bills, the mortgage on the building, corporate credit card debt, and any bonds the company has issued.
- Shareholder equity is the difference between assets and liability; it tells you the "book value", or what is left for the stockholders after all the debt has been paid.
Every balance sheet must "balance". The total value of all assets must be equal to the combined value of the all liabilities and shareholder equity (i.e., if a lemonade stand had $10 in assets and $3 in liabilities, the shareholder equity would be $7. The assets are $10, the liabilities + shareholder equity = $10 [$3 + $7]).
What Does a Balance Sheet Look Like?Below is an example of what a typical balance sheet looks like. I've taken it from an old Coca-Cola annual report and, for the sake of space, removed lines that had a $0 value. Don't worry, though, we will still discuss each line you are likely to encounter when reading a balance sheet, whether for small business or a large publicly traded corporation.
This page is part of Investing Lesson 3 - Understanding the Balance Sheet. To go back to the beginning, see the Table of Contents. If you have already read this lesson, you can skip directly to the Balance Sheet Quiz.
Sample Coca-Cola Balance Sheet
Consolidated Balance Sheet - January 31, 2001
|Current Assets||Dec. 31, 2001||Dec. 31, 1999|
|Cash & Equivalents||$1,819,000,000||$1,611,000,000|
|Short Term Investments||$73,000,000||$201,000,000|
|Total Current Assets||$6,620,000,000||$6,480,000,000|
|Long Term Assets||$8,129,000,000||$8,916,000,000|
|Property, Plant, & Equipment||$4,168,000,000||$4,267,000,000|
|Short Term Debt||$21,000,000||$5,373,000,000|
|Total Current Liabilities||$9,321,000,000||$9,856,000,000|
|Deferred Long Term Liability Charges||$358,000,000||$498,000,000|
|Other Stockholder Equity||($2,722,000,000)||($1,551,000,000)|
|Total Stockholder Equity||$9,316,000,000||$9,513,000,000|