What is the Balance Sheet?
The balance sheet shows the investor the financial state of the company, at a given time. It’s an important metric for comparative analysis of a business. Balance sheets only share the financial data of a certain date. As a result, this document provides a means to compare previously reported values in an effort to spot trends. The math behind the balance sheet is very simple:
Assets – Liabilities = Stockholders’ Equity
This is called the Accounting Equation, and though the terminology may look foreign, it’s straightforward. Assets are typically defined as what that company owns. They can take the form of cash, property, inventory, insurance that’s been paid, even goodwill- anything that a company uses or can use to generate revenue. Subtracted from assets are liabilities, or obligations the company must uphold. This includes loans, salaries, and payments to be made. Finally, stockholders’ equity describes the amount invested by the owners of the company, and the income of the company that’s not been given back to them.
Finding the Balance Sheet
Previously, we discussed how to find the financial data within a 10-Q or 10-K. Now, we need to determine how to find the balance sheet among those statements. This is because not every company refers to their balance sheet like Textron [NYSE:TXT], shown above. Many corporate accountants prefer to use the name, “Statement of Financial Position”. No matter what name it falls under, it’s an easily recognizable table. If you look for the terms provided in the next lesson, it’s hard to go wrong!