Purpose of a Balance Sheet

The balance sheet displays a company's financial position at a given point in time. It shows the company's assets, liabilities, and owners' equity. Assets are the economic resources of a firm including cash, inventory, and equipment. Liabilities are the debts of a firm. Owners' equity is a claim by the owners on the assets of a firm.

The relationship between assets, liabilities, and equity is as follows:

Assets = Liabilities + Owners' Equity

Definitions of the terms listed in the balance sheet:

Since it's extremely time-consuming for you to look up all these definitions individually, I organized them on one page so you can quickly and easily reference them down the road. I streamlined the process for you so you're able to focus on what matters most – Making decisions to capitalize on the information.

Assets: The economic recourses of a firm. Assets are split up into two categories- current and non-current.

Current Assets: All assets expected to convert to cash within 1 year.

Cash: Physical cash on hand.

Short Term Investments: Investments that'll expire within 1 year.

Net Receivables: The amount your clients owe you.

Inventory: Raw materials, work in progress and completed saleable goods.

Non Current Assets: Assets not expected to convert to cash within 1 year.

Long Term Investments: Investments your company intends to keep in excess of 1 year such as stocks, bonds, real estate, and cash put aside for specific projects.

Property Plant and Equipment: Assets that can not be easily easily such buildings, furniture, office equipment, vehicles, and machinery.

Goodwill: The difference between the price paid for a company minus their net assets. Typically is needed after an acquisition.

Intangible Assets: Assets that can not be seen, touched, or physically measured. They include copyright, patents, and trademarks.

Liabilities: The claims by creditors on the assets of your firm.

Current Liabilities: Debts or obligations due within 1 year.

Accounts Payable: How much your company owes your suppliers.

Short Term Debt: Loans due within 1 year.

Non-Current Liabilities: Debts or obligations that are not due in the present year.

Long Term Debt: Loans and financial obligations lasting over 1 year.

Deferred Long Term Liability Charges: Tax liabilities that are to be paid next year. They can also include forward contract obligations like swaps and derivatives. It's best to check out the footnotes in the financial report to better understand what they've comprised of.

Stock Holders 'Equity: The owners' claim on the assets of the firm. For a publicly traded company like Apple, it's how much cash received in return for "shares" of the company. It also includes retained earnings (defined below) that a company is able to accumulate over time.

Preferred Stock: A kind of stock that has higher claim on the assets of a firm than common stock in the event of liquidation. This stock pays a dispute, however the price does not appreciate as fast as common stock. Preferred shareholders do not have voting rights.

Common Stock: Common stock has the lowest priority level claim on the assets of a firm. The common stock price typically appreciates faster than preferred stocks and bonds. You probably own common stock in your investment portfolio.

Retained Earnings: Earnings which are reinvested into the business.

Treasury Stock: Shares of stock that a company keeps in its own treasury. May come from a buyback or were never issued to the public in the first place.

Capital Surplus: Equity that can not be categorized as stock or retained earnings. Typically a stock that was issued at a premium over par value.

There are a lot of pieces to the balance sheet and you might be a little overwhelmed as you read through each definition. Do not worry, we're only going to focus on some of these items when we analyze a company for investment. With that said, it is crucial that you understand how a business is financially organized. I hope that I was able to assist you with this.

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