How to Analyze a Balance Sheet

From: www.linkedin.com (Systems for Business)

What is a balance sheet?

A balance sheet shows you what a company OWNS and OWES.

It’s like a company’s “Net Worth” statement.

🔢 Balance Sheet Formula:

Assets = Liabilities + Shareholders Equity

📸 Balance Sheet = Snapshot

Balance sheet = snapshot -> at a certain point in time

💰 Assets:
What the company OWNS
Two categories of assets:
→ Current Assets: Assets that are expected to be used in <1 year.
→ Non-current assets: Assets that are expected to be used in >1 year.

💳 Liabilities:
What the company OWES
Two categories of assets:
→ Current Liabilities: an obligation due in <1 year
→ Long-Term Liabilities: an obligation due in >1 year

🤑 Shareholders Equity:
A company’s NET WORTH.
→The dollar amount that would be returned to shareholders in the company was liquidated.

🔎 Balance Sheet Analysis:

❓ Questions:
1: How much CASH does the company have?
2: Are there any ACCOUNTS RECEIVABLE?
3: Is there any GOODWILL? How much?
4: What are the biggest liabilities?
5: Does the company have any DEBT? What kind?
6: Is there any PREFFERED STOCK?
7: Are RETAINED EARNINGS positive? Is it growing?
8: Is there any TREASURY STOCK?

🇳🇺 YELLOW FLAGS
1: CASH & CASH EQUIVALENTS → Less Than Total Debt
2: ACCOUNTS RECEIVABLE → Rising Faster Than Revenue
3: INVENTORY → Rising Faster Than Profits
4: GOODWILL → More Than 50% of Total Assets
5: INTANGIBLE ASSETS → More Than 50% of Total Assets
6: SHORT-TERM & LONG-TERM DEBT → More Than Cash
7: PREFERRED STOCK → There Shouldn’t Be Any
8: RETAINED EARNINGS → A Negative Number

• Tweet