Knowing how to analyze a balance sheet is a MUST to make good investment decisions.
I'll teach you everything in 2 minutes:
I'll teach you everything in 2 minutes:
The balance sheet shows you 3 things:
1️⃣ Assets
2️⃣ Liabilities
3️⃣ Shareholders equity
1️⃣ Assets
2️⃣ Liabilities
3️⃣ Shareholders equity
1️⃣ Assets: what does the company own?
A distinction can be made between current assets and non-current assets.
Current assets: assets that can be converted into cash within 1 year
Non-current assets: assets that are harder to convert into cash
A distinction can be made between current assets and non-current assets.
Current assets: assets that can be converted into cash within 1 year
Non-current assets: assets that are harder to convert into cash
Questions to ask yourself about the company's assets:
1️⃣ How much cash and cash equivalents does the company have?
2️⃣ How much goodwill does the company have?
3️⃣ Does the company have a lot of intangible assets?
1️⃣ How much cash and cash equivalents does the company have?
2️⃣ How much goodwill does the company have?
3️⃣ Does the company have a lot of intangible assets?
2️⃣ Liabilities: what does the company owe?
A distinction can be made between short-term liabilities and long-term liabilities.
ST Liabilities: a financial obligation that has to be paid within 1 year
LT Liabilities: debt that has to be paid > 1 year
A distinction can be made between short-term liabilities and long-term liabilities.
ST Liabilities: a financial obligation that has to be paid within 1 year
LT Liabilities: debt that has to be paid > 1 year
Questions to ask yourself about the company's liabilities:
1️⃣ Does the company have more ST or LT liabilities?
2️⃣ Does the company have more cash than short-term debt?
3️⃣ Are total liabilities increasing or decreasing? And why?
1️⃣ Does the company have more ST or LT liabilities?
2️⃣ Does the company have more cash than short-term debt?
3️⃣ Are total liabilities increasing or decreasing? And why?
3️⃣ Shareholders equity: The value the owners (shareholders) have in the company.
Shareholders equity = Total assets - total liabilities
Shareholders equity = Total assets - total liabilities
Questions to ask yourself about the company's shareholders equity:
1️⃣ Does the company have retained earnings?
2️⃣ Are there a lot of preferred stocks?
3️⃣ Does the company buy back shares?
1️⃣ Does the company have retained earnings?
2️⃣ Are there a lot of preferred stocks?
3️⃣ Does the company buy back shares?
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I left my job to transform Compounding Quality into a full investment platform.
To celebrate, I am sharing a free Financial Analysis course.
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I left my job to transform Compounding Quality into a full investment platform.
To celebrate, I am sharing a free Financial Analysis course.
Sign up here if you want to receive it for free: eepurl.com
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