The Balance Sheet: How to Read It, How to Use It

The balance sheet allows one to compare where money is coming from (liabilities), what it is being spent on (assets), and the accumulated value in the company (equity).

The Balance Sheet

All public companies are mandated to provide a balance sheet as part of standard accounting procedures.  The balance sheet allows one to compare where the money is coming from (liabilities), what it is being spent on (assets), and the accumulated value in the company (equity).  It states the net worth of the company by simply subtracting the liabilities from the assets.

The balance sheet should always be in balance.

Assets = Liabilities + Shareholder Equity

So if you add together all the Liabilities and the Shareholder Equity, it should always equal the value of the assets.


The assets of the company are split into current assets and long term assets.

Current Assets

balance sheet example 1
balance sheet example 1

Apple Inc Balance Sheet 2007 to 2011

Cash and equivalents are usually the amounts of easily accessible cash in the bank

Short term investments are any short term liquid investment the company has made.

Trade Accounts receivable are usually any outstanding payments for products sold that are due to the company.

Total inventory is important to watch as the figure shows if the company is building up costly stock that it cannot sell.

Prepaid expenses show the amount of cash the company has invested in advance of receiving services.

Other Assets

Apple Inc Balance Sheet

Longer-term assets include buildings purchased, land owned, and any machinery owned.  They are also depreciated over time.

Goodwill is known as an intangible asset; this could be the inherent value of a brand, or the extra price paid while buying a company that is above the book value of the business.


Liabilities are any outstanding debts or taxes owed by the company.

Example Balance Sheet
Example Balance Sheet

Apple Inc Balance Sheet Example

Accounts Payable are a listing of any debts that must be paid off within a given timeframe.

Accrued expenses are the exact opposite of the prepaid expenses mentioned earlier, essentially any short term obligations that will be paid off in the near future.

Deferred income tax is as you can imagine the taxes that are owed to the government or region authorities but not yet paid.

Shareholder Equity

The shareholder equity is what is left when you subtract the liabilities (debts) from the assets.

Apple Inc Balance Sheet

Common stock is the par value of the stock.  So even though Apple’s actual stock price might be $500, this might be recorded as a $1 par value per stock.  Meaning, during liquidation, you may only receive $1 per share you own.  You may be lucky to even receive that as the shareholders are the last to receive any payment, as creditors and bondholders have priority.

Retained Earnings are the reinvested profits from the company taken from the Income statement.

Book Value

The book value of the company is derived from the balance sheet.  If essentially tells you what the company would be worth if you sold all the assets and paid off all the debts.

Book Value  =  Total common shareholders’ equity / Average Number of common shares outstanding.

Apple had shareholder equity of $76,615 million.

Apple Inc has 935 million shares outstanding.

So,  76,615 / 935 = a book value of $81 per share.  This is historical data used as an example only.


Please enter your comment!
Please enter your name here