| The Secrets of the Balance Sheet | |
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A Guest Article by James Grant
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Why would you care about a company’s balance sheet? News releases tell you how much profit they are making per share, how much their sales have increased since last year, and what the analysts think the company is going to be worth next year. Isn’t this enough? Personally, I don’t think so. Some companies report profit for a year or two that, when actually analyzed by comparing balance sheets, has been exaggerated or even created.
A balance sheet is a financial report for a given date that contains:
The balance sheet breaks down the three categories listed above into greater detail. Often explanatory notes follow up individual figures in the balance sheet. The assets and liabilities listed in the balance sheet have monetary values assigned to them. The balance sheet values do not necessarily reflect the value those items might have right now. The balance sheet allows a person performing due diligence on a stock or bond issue to decide how much value to assign to each asset and determine if there is hidden value, or hidden liability in the numbers presented. The following are some key points to look for.