How to Review a Balance Sheet

When talking about financial statements, most of the people will only focus on income statement or profit and loss account as they bottom line is the most important thing among the financial statements. In such a turbulent economic environment, balance sheet can play a significant role for analyzing your target investment.
Basically, you can find the balance sheet divided into two parts namely the net assets (or net liabilities) and equity. It is called the balance sheet as the figure for the net assets (or net liabilities) should Financial Business Consultant equal to the figure for total equity. The easiest thing to look at is whether your potential investment is having a net assets position. But it is almost true all the cases, so what else can you then review?
By just have net assets position may not mean it is a really good potential investment. Pay attention to what assets is the company holding. Are they current or non-current? Say, if they are having significant portion of non-current assets, the risk is even though the company has a net assets position, it may not have such liquidity to finance its daily operations or debt that fall due.
What kind of non-current assets the company is holding is also important. You can take a look that if they are holding mostly investments or properties, under such turbulent economic environment, the values Sale Of Equipment Cash Flow of these investments and properties can fall significantly (depends on the type of investments). Therefore, what you can find say this year highly valued assets can turn into low value assets next year.
If you find a significant portion for current assets, it usually means the liquidity for the company is good, but, the risk is by classifying significant portion of assets as current assets gives the sign that the company may not have enough investments. Without enough investments, the company is difficult to grow.
Finally, you have to take a look at the liability side. Like assets, liabilities can also be divided into current and non-current. You also need to know what kind of liabilities the company is obligated to bear. Under the economic environment nowadays, the most important thing to look at is probably current debt. If the company has a significant portion of current debt, meaning it is going to pay back the debt within one year, you have to make sure the company has sufficient cashflow to support that. Otherwise, what will happen is either the company has to sell its assets or going to be bankrupt.
It is always best to review the financial statements together instead of one by one as they are in nature highly related. You can get a bigger picture when you review them by trying to link them together.

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