What is a Balance Sheet?

Balance Sheet Mean
A financial statement that summarizes a company's assets, liabilities and shareholders' equity at a specific point in time. These three balance sheet segments give investors an idea as to what the company owns and owes, as well as the amount invested by the shareholders.

Pretend that you are going to apply for a loan to put a swimming pool into your backyard. You go to the bank asking to borrow money, and the banker insists that you give him a list of your current finances. After going home and looking over your statements, you pull out a blank sheet of paper and write down everything you have that is of value [your checking and savings account, mutual funds, house, and cars]. Then, at the bottom of the sheet your write down all of your debt [the mortgage, car payments, and your student loan]. You subtract everything you owe by all the stuff you have and come up with your net worth.

Just as the bank asked you to put together a balance sheet to evaluate your credit-worthiness, the government requires companies to put them together several times a year for their shareholders. This allows current and potential investors to get a snapshot of a company's finances. Among other things, the balance sheet will show you the value of the stuff the company owns [right down to the telephones sitting on the desk of their employees], the amount of debt, how much inventory is in the corporate warehouse, and how much money the business has to work with in the short term. It is generally the first report you want to look at when valuing a company.

Before you can analyze a balance sheet, you have to know how it is set-up.

Assets, Liabilities and Shareholder Equity

Every balance sheet is divided into three main parts - assets, liabilities, and shareholder equity.

  • Assets are anything that have value. Your house, car, checking account, and the antique china set your grandma gave you are all assets. Companies figure up the dollar value of everything they own and put it under the asset side of the balance sheet.

  • Liabilities are the opposite of assets. They are anything that costs a company money. Liabilities include monthly rent payments, utility bills, the mortgage on the building, corporate credit card debt, and any bonds the company has issued.

  • Shareholder equity is the difference between assets and liability; it tells you the "book value", or what is left for the stockholders after all the debt has been paid.

Every balance sheet must "balance". The total value of all assets must be equal to the combined value of the all liabilities and shareholder equity (i.e., if a lemonade stand had $10 in assets and $3 in liabilities, the shareholder equity would be $7. The assets are $10, the liabilities + shareholder equity = $10 [$3 + $7]).

Coca-Cola Company
Consolidated Balance Sheet - January 31, 2001


Current Assets

Dec. 31, 2000

Dec. 31, 1999

Cash and Cash Equivalents $1,819,000,000 $1,611,000,000
Short Term Investments $73,000,000 $201,000,000
Receivables $1,757,000,000 $1,798,000,000
Inventories $1,066,000,000 $1,076,000,000
Prepaid expenses and other $1,905,000,000 $1,794,000,000
Total Current Assets $6,620,000,000 $6,480,000,000

Long Term Assets

Long Term Investments $8,129,000,000 $8,916,000,000
Property, Plant and Equipment $4,168,000,000 $4,267,000,000
Goodwill $1,917,000,000 $1,960,000,000
Intangible Assets N/A N/A
Accumulated Depreciation (or Amortization) N/A N/A
Other Assets N/A N/A
Deferred Long Term Asset Charges N/A N/A
Total Assets $20,834,000,000 $21,623,000,000


Current Liabilities

Accounts Payable $9,300,000,000 $4,483,000,000
Short Term Debt $21,000,000 $5,373,000,000
Other Current Liabilities N/A N/A
Total Current Liabilities $9,321,000,000 $9,856,000,000

Long-Term Liabilities

Long Term Debt $835,000,000 $854,000,000
Other Liabilities $1,004,000,000 $902,000,000
Deferred Long Term Liability Charges $358,000,000 $498,000,000
Minority Interest N/A N/A
Total Liabilities $11,518,000,000 $12,110,000,000

Shareholder's Equity

Misc. Stock Option Warrants N/A N/A
Redeemable Preferred N/A N/A
Preferred Stock N/A N/A
Common Stock $870,000,000 $867,000,000
Retained Earnings $21,265,000,000 $20,773,000,000
Treasury Stock ($13,293,000,000) ($13,160,000,000)
Capital Surplus $3,196,000,000 $2,584,000,000
Other Stockholder Equity ($2,722,000,000) ($1,551,000,000)
Total Stock Holder Equity $9,316,000,000 $9,513,000,000
Net Assets $7,399,000,000 $7,553,000,000


1 comment:

Asim said...

Very well-balanced balance sheet. I like it.