Table of Contents for Understanding the Balance Sheet

Investing Lesson 3 - Analyzing a Balance Sheet

Balance Sheet from The Coca-Cola Company
I wrote this balance sheet analysis lesson to help you understand why the balance sheet is important, what some of the sections you'll find on most balance sheets mean, and why people like me spend so much time studying them when making decisions about which businesses to include in the investment portfolios we manage. Joshua Kennon

To help you navigate my investing lesson on balance sheet analysis, I put together this table of contents with direct links to each of the sections.  You can use it as a central reference, coming back to it after you've read each link, or you can follow the footer navigation path that I've laid out at the bottom of each page to take you through the content sequentially.  All-in-all, the 37-page essay was designed to help you learn what a balance sheet is, the reasons it is so vital to stakeholders, what the different sections represent, some financial ratios you can calculate using the balance sheet data, how to get your hands on the balance sheet of a company in which you want to make an investment, and much more.

 It is meant to be read in conjunction with its sister investing lesson on income statement analysis.  

This might seem like a lot of information but I've worked hard to make it accessible to someone with little to no background in finance, investing, or business because of how important it is.  I've done this because the balance sheet is a key tool in learning to manage your overall risk and I want you to be successful; to achieve your financial dreams and avoid mistakes that set you back in attaining your goals.  Though it is not enough on its own, when used as part of a larger quantitative analysis, understanding a balance sheet can help reduce the chances of making a foolish investment that destroys your wealth.  

Both in my personal investments, and at my capital management firm, balance sheet analysis is a core part of what I spend my days doing.  I want to know what assets a company has, what debts it owes; I want to know what the capital structure looks like and how much tangible capital is required relative to the owner earnings.

 My hope is that by the time you've finished reading this lesson, you'll come away from it with a much better understanding of what it is you're seeing whenever you pick up a company's stock report.  I've also built significantly on some of the concepts in the more than one thousands articles I have published here at Investing for Beginners and the several thousand posts I've written at my personal blog if you want to dive deeper into specifics topics.

 I recommend you grab a cup of coffee, get comfortable, and settle in for a long read.  What you're about to study can change your life and it is worth the effort.  It's a pleasure, and an honor, to be your guide on this journey.  Good luck!

How to Read a Balance Sheet Table of Contents

1. Introduction to the Balance Sheet
2. How to Get a Copy of a Company's Balance Sheet
3. What Is a Balance Sheet?
4. Sample Balance Sheet - The Coca-Cola Company
5. Current Assets on the Balance Sheet
6. What are Accounts Receivable?
7. Receivable Turns
8. Inventory on the Balance Sheet
9. Inventory Turns and Inventory Turnover Ratios
10. McDonald's vs. Wendy's - A Case Study in Inventory
11. Prepaid Expenses and Other Current Assets
12. Current Liabilities
13. Working Capital
14. Working Capital Per Dollar of Sales
15. Negative Working Capital
16. The Current Ratio
17. Quick Test Ratio
18. Long Term Investments
19. Property, Plant and Equipment
20. Intangible Assets
21. Goodwill on the Balance Sheet
22. Deferred Long-Term Asset Charges
23. Long Term Debt and Debt to Equity Ratio
24. Other Liabilities
25. Minority Interest on the Balance Sheet
26. Shareholder Equity
27. Book Value and Net Tangible Assets
28. Common, Preferred, and Convertible Shares

Capital Surplus and Reserves
30. Treasury Stock
31. Retained Earnings on the Balance Sheet
32. Formulas and Calculations for Analyzing a Balance Sheet
33. Putting It All Together - What the Balance Sheet Can and Cannot Tell You
34. Analyzing a Sample Balance Sheet - Microsoft Part I
35. Analyzing a Sample Balance Sheet - Microsoft Part II
36. Analyzing a Sample Balance Sheet - Simon Transportation Services
37. Epilogue for Simon Transportation

If you have already read this lesson, you can skip directly to the Balance Sheet Quiz.  (Note: As of 2016, the balance sheet quiz is being migrated to a new template and is temporarily unavailable.  I will try and get it back online later this year.)

Additional Resources To Teach You Investing

Other Investing Lessons You May Find Interesting
Investing Lesson 1 - Intro to the Stock Market
Investing Lesson 2 - How Stock Prices Are Determined
Investing Lesson 3 - Analyzing a Balance Sheet
Investing Lesson 4 - Analyzing an Income Statement