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]
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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