The Balance Sheet: Assets, Debts and Equity

This financial statement analysis article marks the third piece in our ongoing series.

In the first article, I gave a brief introduction to the three financial statements—the income statement, the balance sheet and the cash flow statement. In the March AAII Journal, I discussed the income statement, which provides one of the most crucial figures that companies report—earnings per share. In this third article, I provide a detailed explanation of the balance sheet.

What It Is and Where to Find It

The balance sheet is the starting place to analyze a company’s financial strength. Unlike the income statement, which details a firm’s earnings and expenses over a period of time, the balance sheet lists all of a company’s assets and liabilities at a single point in time. The balance sheet provides a snapshot of a firm at the end of a fiscal quarter or year. The income, expenses and cash flow that come into and leave a firm during a period are not shown; rather, the balance sheet represents the total impact of all of these transactions at a certain date.

Annual and quarterly reports issued by companies are the best place to find the balance sheet. A firm’s annual report is typically available in the investor relations section of the company website. Separately, quarterly (10-Q) and annual (10-K) reports are required to be filed with the SEC and are available to the public online through EDGAR (www.sec.gov/edgar.shtml). On AAII.com, a company’s balance sheet can be accessed by typing the stock symbol at the Enter Ticker box on the home page and selecting “Financials” at the stock quote page. You may also visit major investment websites such as Morningstar.com and Yahoo! Finance to find financial statements. (Companies also provide earnings releases that can be found at major investment websites or at the company website.)

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