Accounting is the language of business.
If you buy stocks, you MUST learn how to read a balance sheet.
Here’s everything you need to know:
The balance sheet is one of the 3 major financial statements.
It shows company’s:
▪️Assets: What it owns
▪️Liabilities: What it owes
▪️Shareholders Equity: It's net worth attributable to its owners
At a fixed point in time
That “at a point in time” part is key!
A balance sheet is a SNAPSHOT of a company’s net worth.
It is usually measured at the end of a quarter/year.
That’s different from an income statement or cash flow statement, both of which are measured over periods of time
All balance sheets follow the same formula:
Assets = Liabilities + Shareholders Equity
This formula must be in balance at all times
(Hence the term “balance sheet”)
Side Note:
This formula can be easily re-arranged into the “net worth” formula that you are already familiar with
Assets - Liabilities = Shareholders Equity (Net worth)