Although the topic can get much deeper and more complex, this article is designed to give investors the ability to understand the numbers and simpler of financial ratios, and be able to use that knowledge to assist them to make better decisions when doing their due diligence. The balance sheet shows a company's financial position at a specific date, usually the last day of the company's fiscal year for annual reports. One side of the balance sheet shows what the company owns and has owing to it, called assets. The other side represents liabilities, which are what the company owes, and also has shareholders' equity, which represents the excess of the company's assets over its liabilities. Shareholder's equity is often referred to as book value.
Total assets are equal to the sum of the company's liabilities plus the shareholders' equity.
The Balance Sheet can be used to uncover the value of the company, the debt load, and cash position. The difference between the two is the company's profit or loss for the year. The amount left over after taxes is the net earnings. Net earnings are basically saying how much money the company really' made over the course of the year. This shows how the company's financial position changed from one year to the next.