How to Read a Balance Sheet
Learn How to Read a Balance Sheet With These Lessons
A balance sheet is a snapshot of a business that shows its assets (what is has), its liabilities (what it owes), and what value is left over (the equity). Balance sheet analysis is a core part of understanding the potential value of your stock market investments or in managing your capital as a business or an individual. In both cases, you have to know what assets a company has and what debts it owes. You'll want to know what the capital structure looks like and how much tangible capital is required relative to owner earnings—all information that can be found on the company's balance sheet if you know what you're looking for.
If you have little or no understanding of balance sheets, these lessons can help. You'll know what you're seeing when you pick up a company's stock report. 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's worth the effort.
Learn Balance Sheet Analysis
This table of contents provides direct links to each numerous lessons designed to help you understand balance sheet analysis. You can use it as a central reference, coming back to it after you've read each link, or you can simply follow the footer navigation paths laid out at the bottom of each page to take you through the content sequentially.
All in all, you'll learn what a balance sheet is, why it's 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 invest, and much more. Each is meant to be read in conjunction with its sister investing lesson on income statement analysis.
This might seem like a lot of information at first glance, but it's organized sequentially to be less overwhelming. It's vitally necessary for anyone with little to no background in finance, investing, or business to understand these components. The balance sheet is a key tool in learning to manage your overall risk, to achieving your financial dreams, and to avoid mistakes that can set you back in attaining your goals. When used as part of a larger quantitative analysis, understanding a balance sheet can help reduce the chances of making a foolish investment that can destroy your wealth.
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
27.Book Value and Net Tangible Assets
28.Common, Preferred, and Convertible Shares
29.Capital Surplus and Reserves
31.Retained Earnings on the Balance Sheet
32.Formulas and Calculations for Analyzing a Balance Sheet
33.Putting It 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