TABLE OF CONTENTS The balance sheet. The income statement. The cash flow statement. These are the Big Three when it comes to understanding a company the foundation of financial statement analysis. And the balance sheet is the first and most basic because it describes what a company owns, owes, and has in reserve, so I'll take it up first.
People often talk about a company in terms of its balance sheet, as a sort of shorthand. A "strong balance sheet" is what all smart investors want to find: real assets growing in value and a debt load that is at least manageable. As a company's profits continue to grow, so does the shareholder equity. All things are good. By contrast, a "deteriorating balance sheet" is bad news: debts surging, assets losing value, and inventories and receivables piling up are signs that things are bad for investors and will get worse.
Think of a balance sheet as a financial snapshot of a company a still picture that freezes the movement of capital and goods so you can see what's what. The picture can be pretty or ugly or kind of boring, but it always shows the same three things: assets, liabilities, and equity. The balance sheet shows the values of these three categories as of a specific date, typically at the end of the last month of a quarter.
Sometimes you'll look at the reports for a big company and the numbers look awfully small: What is General Motors doing...
