WFU Law School
Law & Valuation
3.2.1 Balance Sheet Items

3.2.2 Balance Sheet Analysis

Balance sheets are a snapshot of company well-being. You can learn a lot by looking at --
  • the notes that accountants include with the balance sheet, to give context like scribblings on the back of a photograph.
  • changes between balance sheets over time, to give a sense of direction and motion like a series of images in time-lapse photography.
  • the ratios of various items in the balance sheet, to measure business well-being like a comparison of colors or shadow in a photograph to decide whether the sun is rising or setting.

Notes. [discussion here on notes to balance sheet]

Changes. [more here]

 

 

Ratios. You can also learn something by comparing different aspects of the balance sheet, such as how much cash the company has compared to its current debts -- can it pay them? Like a doctor who takes temperature and blood pressure measures of a patient, financial analysts use various ratios derived from a balance sheet to evaluate a company's financial health:

  • Net working capital
  • Current ratio
  • Acid test
  • Book value of shares
  • Asset coverage of debt
  • Debt/equity rati

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3.2.1 Balance Sheet Items

©2003 Professor Alan R. Palmiter

This page was last updated on: March 21, 2004