Understanding companies
A balance sheet reports recognised assets, liabilities and owners' equity at a point in time. The accounting equation links them: assets equal liabilities plus equity.
Make it click
Take a photograph of everything a business recognises as resources and show who has claims on them: outside creditors and the owners' residual interest.
Now put that into markets
Unlike an income statement covering a period, the balance sheet is dated at one moment. Later transactions can change it immediately.
Assets include cash, receivables, inventory and long-lived resources; liabilities include payables, debt and provisions. Equity is the residual under the accounting rules.
Compare several dates and read notes on valuation, maturity, collateral, contingencies and currency. Ratios cannot repair an incomplete understanding of the line items.
Recognition and measurement rules mean the statement is not a market-value list. Important contracts, capabilities and risks may appear only in notes or not as booked assets.
Takeaway
