Detailed & Simple Explanation about Balance Sheet

understand-the-balance-sheet

The balance sheet is a very important tool to investors because; it gives you useful info about many things that will help you to make the right decisions.

If you dream to make money from investing in stocks you have to read this article carefully as there are many factors and tools you have to be aware of.

First, what is balance sheet?

The balance sheet is a report that shows you the financial status and financial position for any company and what its position in the stock market, and how big it is, and also shareholders status in the company and also their profits and any other info you need to know you will find it on the balance sheet.

When you try to analysis any company you have to read its balance sheet well before buying its stocks, maybe you can find a good company with a good balance sheet but after few days, you find it crashes down, so we recommend you to read every item in it very carefully.

What are the items of the balance sheet?

There are three items for balance sheet: Assets – Liabilities -Owner’s Equity

Assets: there are two types of Assets.

Fixed Assets: are anything owned by the company, and the company bought it for itself not for selling it, such as land, machines, cars, buildings, furniture and etc.

Current Assets: such as the money and anything the company has and able to be transferred to money during one financial period (year).

Intangible Assets: anything that the company owns and it doesn’t have tangible physical entity such as brand name, trademark, etc.

Liabilities: when the company has loans in order to complete its business and anything the company get and didn’t pay its money to its owners.

The types of liabilities:

Current Liabilities: the liabilities that has financial period year or less, such as accounts payable and notes payable.

Fixed liabilities: the liabilities that has more than one year, such as bonds payable

Owner’s Equity (shareholders): when you buy stocks from any company so the company has to pay you profits and this is called shareholders equity.

 

Note: to get the number of assets:

Assets = Liabilities + Owner’s Equity (shareholders)

inveting-in-stocks

Working Capital: usually it doesn’t show in the balance sheet but you can get its number easily by using this equation:

Net working Capital = current assets – current liabilities.

Hope we could make the balance sheet clear ASAP for all, wait for the next article

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