BALANCE SHEET ANALYSIS

CASH (PRONOUNCED KAAASH)  Current Assets – “Liquid” - Usually sitting in a bank/money market.  What can you do with this??  Reinvest in the Company  Research and Development  Advertising  Buyback Shares of stock  Dividends  Why do you NOT want this amount too high???

ACCOUNTS RECEIVABLE : (PRONOUNCED ACCOUNTS RECEIVABLE)  Money that is owed to you for a product or service that you provided.  Good has already changed hands  You negotiate terms – 15,30,60 days payment  Must be careful and diligent in collecting this money.  The worse off your business, the harder it is to get favorable terms.  You don’t want to “write down your receivables”, meaning someone can’t pay off their debt to you.

INVENTORY  What you have ready to sell at a point in time.  You have to manage this number… Why???  Risk of spoilage  Risk of product going out of style or out of favor  Storage Costs

GOODWILL / INTANGIBLE ASSETS  Values on items that you cannot touch.  These include things like patents, brands, trademarks, reputation  Be careful on judging a company on this number…. Many companies will overstate this number to make themselves look better than they are.

INVENTORY TURNOVER  How many times in a year, you sell all of your merchandise…  How do I calculate this???  (Current Year Cost of Goods Sold (AKA Cost of Revenue)) (Average of Last Year and Current Year’s Inventory Amount) For example, if you get 4 for your inventory turnover, that means you sell your merchandise 4 times in a year. You can calculate the number of days it takes you to sell it out by dividing this number into 365.

CURRENT LIABILITIES  Money that you owe within the next year  Short term debts  Money that you will pay back in the current year on your long term debt  Accounts Payable – What you owe for supplies or products that you use to sell your product, or the product itself.

WORKING CAPITAL  Current Assets – Current Liabilities = Working Capital  Money that you have to spend on the operations of your firm.

CURRENT RATIO  Current Ratio = (Current Assets / Current Liabilities)  What number do you want this to be greater than???  Yes, you are correct….You want it to be at least 1  What does it tell you???  Will you have enough money to pay off all your debts if they come due today  Do you get worried if that number is too high?  Why?

LONG TERM DEBT  Money that you owe on long term borrowings like mortgages, equity loans, lines of credit, etc.

DEBT / EQUITY RATIO  (Total Debt / Shareholders Equity) * 100  Be careful if this number is greater than 50%