Value Investing: Balance Sheet Beginners Guide

A Beginner’s Guide To Balance Sheets

A balance sheet is a financial statement that shows how much a business has and how much it owes at a point in time.

A balance sheet consists of three areas:

  1. Assets
  2. Liabilities
  3. Equity

What are assets?

An asset is an item owned by the business. Assets include items like equipment, buildings, money owed to the company. Assets also include items that aren’t physical such as the value of the business’ brand in the eyes of its customers.

What are liabilities?

Liabilities represent money owed by the business. Liabilities include items like loans from the banks and money owed to suppliers.

What is equity?

Equity is the difference between assets and liabilities. It can be considered what the business really has once all of its liabilities are taken into consideration.

Equity includes money retained by the business from operations less any money paid out as dividends.

A Simple Balance Sheet Example

Business Name
Balance Sheet
30th June, 20XX





Assets

Liabilities
Current Assets

Current Liabilities
Cash 60,000
Accounts payable 5,000
Accounts Receivable 10,000
Total 5,000
Total 70,000





Non-Current Liabilities
Non-Current Assets

Bank Loan 129,000
Property & equipment 150,000
Total 129,000
Total 150,000





Total Liabilities 134,000
Total Assets 220,000





Equity



Retained Earnings



Net Profit After Tax (NPAT) 56,000



Less dividends 30,000



Total 86,000








Total Liabilities & Equity 220,000