Balance Sheet

Section: Balance Sheet Analysis Estimated study time: 45 minutes Content: The balance sheet (statement of financial position) presents a company's assets, liabilities, and equity at a single point in time, satisfying the fundamental accounting equation: Assets = Liabilities + Equity. Assets represent resources controlled by the company that are expected to generate future economic benefits. Liabilities are obligations to transfer resources to other parties. Equity (net assets or book value) is the residual interest of shareholders after liabilities are deducted from assets. The balance sheet is used by analysts to assess a company's liquidity (ability to meet short-term obligations), solvency (ability to meet long-term obligations), and capital structure (the mix of debt and equity financing). Unlike the income statement, which covers a period, the balance sheet is a snapshot — it changes with each transaction. Current assets are those expected to be converted to cash within one year or one operating cycle: cash and equivalents, short-term investments, accounts receivable, inventories, and prepaid expenses. Non-current (long-term) assets include property, plant, and equipment (PP&E, reported net of accumulated depreciation), intangible assets (patents, trademarks, goodwill), and long-term investments. Goodwill arises from acquisitions when the purchase price exceeds the fair value of identifiable net assets; under both GAAP and IFRS, goodwill is not amortized but must be tested for impairment at least annually. Current liabilities include accounts payable, accrued liabilities, deferred revenue, and the current portion of long-term debt. Non-current liabilities include long-term debt, deferred tax liabilities, and pension obligations. Equity comprises: common stock (par value), additional paid-in capital (APIC, amounts received above par), retained earnings (cumulative net income minus dividends), treasury stock (repurchased shares, a contra-equity account reducing total equity), and accumulated…