The balance sheet provides a diligent investor with many clues to a firm's future performance. In this section, you will learn the basic building blocks necessary to do such analysis. Once you completely understand the balance sheet, making informed investment decisions should be much easier for you. The concept behind the balance sheet is very simple. Assets are economic resources that are expected to produce economic benefits for its owners.
Assets can be buildings and machinery used to manufacture products.
They can be patents or copyrights that provide financial advantages for their holder. Let us begin with a look at a few of the important types of assets that exist. Current assets are assets that are usually converted to cash within one year. Bondholders and other creditors closely monitor a firm's current assets since interest payments are generally made from current assets. It is the most basic current asset.