Introduction to Understanding the Balance Sheet

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This tutorial identifies the basic formula behind a balance sheet and helps you understand how to apply it. A sample sheet is included.

What you will learn

  • Understanding the Balance Sheet
  • Why the Balance Sheet Is Important to Investors
  • The Basic Concept behind a Balance Sheet
  • What Are Assets?
  • Long-Term Assets
  • What Are Liabilities?
  • What Is Shareholders' Equity?
  • Example of a Balance Sheet

What do you know?

Introduction to Understanding the Balance Sheet

The true worth of a company is not what someone is willing to pay for its stock, but how much the company owns free and clear. The best way to ascertain this is to examine the company balance sheet.

The balance sheet contains important information about a company’s assets and liabilities: what it owns and owes. An examination of the balance sheet can be very revealing to a would-be investor. Not only is what’s on the balance sheet important, but what is omitted is important as well.

Balance sheets of publicly traded companies are a matter of public record and can be obtained in a company annual report or through the Securities and Exchange Commission’s Website. If you are thinking of making a serious investment in any one company, you owe it to yourself to review that balance sheet.