How to read a balance sheet

      A companies balance sheet is one of the most comprehensive looks into a companies financial health- it looks at the companies assets, their debt and shareholders equity .. and yet, a lot of investors simply glaze over it or don't look at it all. For me personally, it is the first thing I look at when investing in a company. I want to see how well a company can hold up for the next 3, 5 and 10 years.

      The balance sheet is broken down into four sections- the first is the current assets.

                               AAPL balance sheet

       On top of the section you can see it is sorted by year and you usually have the option to see quarterly data as well. The numbers you see are valued in 000's. For example the cash and cash equivalents for 2017 is represented as 20,289,000 but is actually 20,289,000,000 or, 20 billion.


       So let's get into what each line means.

Cash and cash equivalents is simple, it is cash or anything that can be liquidated to cash instantly. This is important because you can see how much cash a company has on hand- they can use this equity for research and development, acquire new long term assets or other business ventures without taking out a loan.

Short-term investments are any investments that management plans on selling within the next 12 months. This generally includes certificates of deposit (CD) and US bonds.

Net Receivables represents money they have not received yet that they are due. For example if Microsoft sells a bunch of Xbox's to Game stop-they don't pay up front, but rather at a predetermined time- that is a net-receivable.

Inventory  is the products value on hand. A high amount of inventory is not always good- especially with  tech stocks, as technology becomes obsolete so quickly. It's important to pay attention to this by industry.

Other current assets Is anything that is an asset that does not fall under the category above. This could be anything from a contract, trademarks, patents, company real estate owned or even company vehicles.

Total Current Assets is all the current assets added up.


        In the next section, you will see their long term assets.

Long term assets are non-current assets.. Assets that are not intended to be liquidated or consumed within a year,

Long term investments is exactly what it sounds like- Investments the company has that they don't plan on selling for a year. This includes stocks, bonds, real estate and cash that they intend to hold on to.

Fixed assets are assets that the company owns that they do not plan to sell- these are assets that keep the company churning profits. Such as machines, land and factories.

Goodwill  Is an intangible asset that arises when one company purchases another for a premium value. The value of a company's brand name, solid customer base, good customer relations and good employee relations are an example of goodwill.

Intangible assets  are non physical assets, such as patents, trademarks, copy write and goodwill. It is hard to put a dollar amount on these because of the uncertainty of future benefit.

Other assets are any assets that have not been previously listed.

Deferred asset charges  are expenses for which a company has already paid but not yet subtracted from the assets. 

Total Assets are both the companies assets- both short and long term.

        Now, we get into liabilities, one of the most important parts of the balance sheet

Account payable represents a companies obligation to pay off a short term debt to creditors.

Short term debt is any debt that is payable within the next year- this is important to see if a company can pay it's short term obligations.

Total current liabilities are all debts payable within a year.

Long term debt is the opposite, they are any debts that are payable in the long term.

Other liabilities are payments due that don't fall in the categories above.

Deferred liability charges is money a company receives from a customer as a prepayment for goods or services. It is listed on a liability until the goods are delivered.

Minority interest is when someone has a minority share of the company and the company has to buy them out.

Total liabilities is just everything payable.

     The fourth and final section of the balance sheet is the stock holders equity

Common Stocks This refers to the par value (or stated value) of the stock, which has nothing at all to do with the market value of the stock.

Capital Surplus Capital surplus includes equity or net worth otherwise not classifiable as capital stock or retained items.
Retained earnings is When company executives decide that earnings should be retained rather than paid out to shareholders, they need to account for them on the balance sheet under shareholders equity. This allows investors to see how much money has been put into the business over the years

treasury stock is the figures in treasury stock refer to the cost of the shares a company has issued and subsequently reacquired.

other equity any other marketable equity that is not listed

total equity total of all marketable equities

total liabilities and equity is equity-liabilities



You can see Apple's balance sheet here

https://www.nasdaq.com/symbol/aapl/financials?query=balance-sheet







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