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Balance Sheet: Asset, Liabilities, and Equity

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When trying to pick a company whose company you want to FXempire HQBroker Review in, you do not only look for the qualitative factors that affect the business. Equally important are the qualitative factors that influence a company, or those that you can measure in terms of numbers.

Among these quantitative factors are the financial statements and earnings reports that a company releases every quarter.

For this article, we will focus on the balance sheet and the things that we can find in it to help us determine if company is a good or bad investment. Check them out!

The Company’s Assets

When you look at the balance sheet, one of the first things that you will notice is the list of the company’s assets.

There are generally two types of assets: the current assets and the non-current assets.

When we say current assets, we refer to those assets that the company will use up or convert into cash within one business cycle, which is normally 12 months. There are 3 very important types of current assets: the cash, the inventories, and the account receivables.

You want to go after a company that has huge cash reserves, since cash acts as some sort of insurance during difficult times. Along with this, large cash reserves give the company some good options for future expansion.

Growing cash reserves indicate good performance, but you should not be too confident on this. You also need to ask where the company intend to use the cash or why it doesn’t put the money to use at all. This could, after all, be a sign the company has already run out of Online Trading Review opportunities.

Inventories are the finished products that the company hasn’t yet sold. The company’s cash reserve should tie up with its inventories. If you see that the inventories are growing faster, you might want to have some second thoughts on the company.

Lastly, account receivables are the uncollected bills, or those that other entities owe the company. Remember that it’s normally a red flag, or a negative sign, when the company takes a long time to collect the bills. Keep in mind that it’s better for the company to collect cash quickly than wait longer.

Non-current assets are those that do not belong to the categories above, such as plants, equipment, and properties.

The Company’s Liabilities

Just like assets, there are current and non-current liabilities.

Current liabilities are those that the company needs to pay back within a year, including payments to suppliers. On the flip side, non-current liabilities are those that the company pay for more than a year, including bank and shareholder debt.

The company should be able to manage these debts properly and efficiently. In other words, you might want to stay clear of companies that have higher liabilities than debts.

Last but not the least: the Equity

The difference between the company’s assets and liabilities is called its equity, which represent how much the shareholders own in the company.

There are two important items on equity: the paid-in capital and retained earnings. The paid-in capital refers to the price the shareholders had to pay when the company first went public, while the retained earnings refer to the money that the company chose to reinvest in the business.

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