What is a balance sheet, and how can I read a balance sheet to learn more about the financial situation of a company? What do the various financial terms on the balance sheet mean, and how do I understand the full picture?
⏱️TIMESTAMPS⏱️
0:00 Introduction to the balance sheet
0:14 What is a balance sheet
1:04 Reading a balance sheet
1:52 Balance sheet example
2:43 Balance sheet categories
3:15 Assets on the balance sheet
6:16 Liabilities and equity on the balance sheet
8:21 Balance sheet analysis
The Walmart balance sheet featured in this video is dated January 31st, 2020. Want to have a look at the financial health of Walmart based on the very latest quarterly balance sheet information, then use Financial Health analysis of Walmart on the Simply Wall Street site: bit.ly/3frHIsg
The balance sheet is an overview what a company owns and what a company owes at a point in time. What is owned is on the left, what is owed is on the right. The #balancesheet is one of three very useful #financialstatements that a company puts together and publishes. The other two financial statements are the income statement, an overview of the profit or income that the company generates during a period, and the cash flow statement, an overview of how much cash the company generates, and where it spends that cash during a period. The balance sheet is a statement of the financial position at a point in time, so it’s like a picture. The income statement and cash flow statement both cover the flow during a certain period (usually a month, a quarter, or a year), so they are like a movie, each with its own focus.
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When reading a balance sheet, it is important to start off by looking at the balance sheet by category. Current assets and non-current assets on the left. Current liabilities, non-current liabilities, and equity on the right. Current assets are cash and other assets that are expected to be converted to cash within a year. Non-current assets are longer-term investments that cannot be converted into cash quickly. Current liabilities are amounts due to be paid to creditors within twelve months. Non-current liabilities are amounts owed that are to be paid after the period of one year. Equity on the balance sheet is the book value of the shareholder capital.
That’s how the balance sheet works on a conceptual level. Let’s now look into the balance sheet of a real-world company: retail company Walmart. Walmart’s fiscal year runs from February through January, so we’ll be reviewing the year-end balance sheet of January 31st, 2020. Current assets $61.8 billion, non-current assets $174.7 billion, adding up to total assets of $236.5 billion. Current liabilities $77.8 billion, non-current liabilities $77.1 billion, equity $81.6 billion. And as the word balance sheet suggests, the total amount owned equals the total amount owed. Per the accounting equation: assets equal liabilities plus equity.
Let’s zoom into the balance sheet in more detail, and review what is in each of the balance sheet categories: current assets, non-current assets, current liabilities, non-current liabilities, and equity. Same five categories, just a lot more detail to dig into. In the American format of the balance sheet, assets are listed from most liquid to least liquid. Liabilities are listed from due first to due last. I will take you through the main line items.
The balance sheet: an overview of what a company owns and what a company owes at a point in time, which can tell very interesting stories about the financial situation of a company. If you have any questions about the balance sheet, then please post them in the comments below.
Philip de Vroe (The Finance Storyteller) aims to make accounting, finance and investing enjoyable and easier to understand. Learn the business and accounting vocabulary to join the conversation with your CEO at your company. Understand how financial statements work in order to make better investing decisions. Philip delivers #financetraining in various formats: RU-vid videos, classroom sessions, webinars, and business simulations. Connect with me through Linked In!
16 июл 2024
