Investing for Beginners .EU, investing

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Sigmund Freud

Balance Sheet

 

Balance sheet is one of the three main financial statements (others are income statement and cash flow statement). Balance sheet also might be called a statement of financial position because this statement explains company financial health and positions at some specific day. 

 

From balance sheet we can indicate capital structure of the company, indebtedness level, liquidity and many other financial indicators that are important for stocks. Every balance sheet is made out of three blocks: assets, liabilities and equity

 

In the table you can see the main groups that could be classified in every balance sheet:

 

Main groups in balance sheet What can be included in the group Explanation of the group
Short-term (current) financial assets Cash, cash equivalents, deposits, short-term investments in securities All short maturity financial assets that aren’t used in company’s activity. Such assets increase company’s market value directly.
Short-term (current) non-financial assets Inventories, receivables, prepayments All there assets are part of working capital
Long-term (non-current) tangible assets Property, plant and equipment It is a main assets group that is used in company’s production process and requires a lot of investments (for production).
Long-term (non-current) non-tangible assets Intangible assets, investments in associates, investments, long-term receivables These assets aren’t held in every company and vary by the type of business.
     
Equity Share capital, reserves, share premium, retained earnings Equity represents book value of shareholder’s ownership (assets less liabilities).
Short-term (current) financial liabilities Short-term borrowings and loans Those are short-term liabilities for which company is paying interests.
Short-term (current) non-financial liabilities Trade payable, accrued liabilities, income tax liabilities, other Those are short-term liabilities for which company is not paying any interests and these assets are reducing working capital.
Long-term (non-current) financial liabilities Long-term borrowings and loans, issued bonds Those are long-term liabilities for which company is paying interests.
Long-term (non-current) non-financial liabilities Long-term payables, deferred tax, accrued liabilities Those are long-term liabilities for which company is not paying any interests.

 

Total assets in every balance sheet always have to be equal to the sum of equity and liabilities. However, often balance sheets may have off-balance items that are not direct liabilities or assets, however under some circumstances could create some gain or loss. 

 


Every balance sheet discloses numbers for some exact date (including previous period) that usually is end of a financial quarter or financial year. Numbers may represent thousands or millions of the indicated currency. If balance sheet is consolidated, it means that such balance sheet discloses financial data of the whole group including subsidiary companies that are controlled by the parent corporation.

 

In the picture below you can see an example of balance sheet; however, various balance sheets may have differences in their form.

 

 



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