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Good day subscribers thank you so much for joining me today i am jeremy this is the financial education channel and today we are talking about balance sheets i’m gonna explain to you how to read a balance sheet and what things are important to look at when you’re looking at an investment to make and looking at the balance sheet that way or whether you’re running
A business those kinds of things i’m gonna go line by line i’m gonna put a balance sheet up on your screen i’m gonna go line by line and explain in the easiest way possible what each category means so you can remember it and before i even get into this video i just want to say balance sheet is extremely extremely important whether you are a business owner balance
Sheet you have to know balance sheet you have to understand it you have to build a balance sheet for your business or whether you’re investing in stocks you have to know what a balance sheet is you have to understand a balance sheet so that can help you make good wise investment decisions and just in general life understanding a balance sheet if you can create
A balance sheet in your personal life that’s a great thing and that will help you about reach your goals later on down the road so let’s go ahead and get into this as you should see now on your screen i should have put the balance sheet up for apple corporation we’re looking at apple apples are great one to look at because everybody either owns an apple product
Or they know somebody that owns an apple product and by the way this is part of a three-part series yesterday i did the income statement breaking that down today’s balance sheet obviously of tomorrow is cash flow so i’m breaking it all down and at the top of the screen you see apple and we see that apple stock price and all that good stuff and then we see balance
Sheet then you see a tab under that that says annual data or quarterly data we are looking at annual data here so we’re looking at for the end of the year the full year what they had for numbers and you’re gonna see here on the we have three years listed we have september 28 2013 september 27 2014 september 27 6 2015 so they show three years of information here
For the simplicity we’re only going to look at 2015 what they have last year because we don’t really need to follow through it all but every balance sheet you’ll pretty much ever look at it will show at least three to five years of history on the balance sheets you can kind of track what’s moving where or do they have more cash coming in do they have more debt
Over the years things like that so let’s go ahead and get into this so we see period ending there and then used under that you see a little darker colored line that says assets so first we’re looking at assets we’re looking at current assets which is a category under that in the first main line item we have there is cash and cash equivalents now first off all
These if all these numbers are looking at they’re all in thousands so meaning the cash and cash equivalents line for 2015 that’s actually 21 billion dollars they have it looks like 21 million here on the paper but that’s actually 21 billion dollars because it’s in a thousands so apple has cash and cash equivalents of 21 billion cash and cash equivalents is anything
That immediately can be turned into cash so it’s basically whatever they have in the bank as far as cash goes or if they have something in a savings account things like that big companies do and if they can turn it into cash immediately then that counts as a cash or a cash equivalent they don’t even have to worry about selling something or something like that next
Line item down there we have short term investments short term investments or anything like maybe they invest in a short term cd account like a 1 month or a 3 month or something like that or they’re planning on just holding a stock for a very short amount of time something like that that is a short term investment we see they have 20 billion dollars in short term
Investments by the way we’re dealing with apple here so all the numbers are going to be ridiculously big it’s insane net receivables net receivables is anything they’ve sold that that hasn’t come in for the money yet so they’ve sold a product to somebody but that company hasn’t paid them for that product so say they sell an iphone to best buy best buy if they don’t
Pay that money upfront they might pay at the end of the month so that’s a net receivable that’s money that’s going to be coming in here in the future it just hasn’t come yet that’s net receivable inventory inventory is what they have on hand for inventory of products at that exact moment apple had two billion dollars at this time in inventory you might say that
Numbers a little low because apple does you know well over two hundred billion in revenue a year only two billion an inventory well apple keeps inventory extremely low throughout the year because they’re very good at managing inventory so keeping it down and only producing products that are going out immediately next line arm down we have other current assets in
Other current assets this can be anything that’s a current asset and it’s not listed in one of those categories there’s like a thousand different things it’s not usually a category that has very much money in it but for apple it still is nine billion dollars nine point five billion dollars and other current assets so we have a darker number there below that under
The line that says total current assets 89 billion if you add up all the numbers we just went through that equals 89 billion under that we have long-term investments long-term investments of 164 billion dollars long-term investments is anything that the company has invested in they’re planning on investing in for the long term maybe they bought stock in a company
And they plan on holding up the long-term that’s a long term investment maybe they have a cd account that’s gonna expire five years from now that’s a long term investment as a bond or something like that government bonds if they plan on holding for long term those are all long term investments under that we have property plant and equipment that’s twenty two billion
Dollars they have their that’s any buildings that could be a corporate campus that could be campuses where employees are housed that aren’t necessarily at the big corporate place because apple has many offices all over the world it could be factories apple owns serve facilities all those kinds of things all the equipment to make their devices that maybe they
Own that’s all property plant and equipment i know that is goodwill goodwill is kind of like mmm i guess you could say it’s just how much confidence the brand name has in those kinds of things what is the brand worth by itself if nothing else existed in apple’s case they put it down for 5 billion that’s a number can that can jump around you know some companies
Will put the goodwill at almost nothing some will put them at a lot it’s something that changes all the time it’s what i call bs category because you can almost pick up your own number and put it in there they can say the their goodwill is 50 billion if they want and that could probably stick you can say it’s worth 500 million that could probably stick it it’s
Kind of a bs category in my opinion intangible assets is anything you cannot touch that but it’s an asset so that could be intellectual property patents things like that obviously in the tech industry and patents are very important intellectual property is very important we see apple has almost four billion dollars in intangible assets three point eight nine to
Be exact we have amortization amortization they don’t have any of that that’s not a line item you’ll ever really pay attention to and you’re probably never gonna use it so we’re not going to cover that too much other assets is anything that hasn’t already been listed that’s more of a longer-term asset can go into that category deferred long-term asset charges
That’s nothing you really ever need to worry about so that’s almost always empty and you’ll probably never even use that in your business either so we have total assets of 290 billion how they got that is they added up all those current assets and they added up all the long-term assets there and that’s how you get a two hundred ninety billion dollar number there
So now we’re moving on to the liabilities down below liabilities we start off with the current liabilities we have accounts payable of 60 billion that’s any bills they have to pay so that have not been paid so apple had 60 billion of inventory still pay for or or you know bills for this electricity that everything is added up into that things that they’ve used or
Or about to use that they bought but they haven’t paid for you because not everything when you’re a big company like that not everything you buy or what not you’ve already paid for so they had 60 billion of accounts payable still they had short and current long-term debt of about eleven billion ten nine nine nine so about eleven billion dollars that is debt that
Is due like now or pretty much within the next three months so it’s coming up very soon you have to pay it soon 11 billion looks like a big number for short-term debt but for any company apple size it’s nothing nothing we have other current liabilities which once again that’s similar to the other current assets category where it’s just anything that’s considered
A current liability you put into that line item so we have total current liabilities of 18 billion dollars under that we have now the longer term liabilities long-term debt of 53 billion so that is debt that’s due past three months from now and mostly debt that’s due at least a year down the road some of that debt can be as far as five ten 15 years down the road
Anything long-term debt apple was fifty three billion they used to have zero back in the steve jobs era but they now take out debt because the ceo figures they can borrow money so cheap then they can go ahead and invest that in other companies those kinds of things other buy abilities or anything that’s considered a liability but it’s on long-term liability that
They have not paid maybe lawsuits things like that deferred long-term liability charges we won’t even talk about that that’s very unimportant but apple does have three point six billion their minority interest that’s anybody that’s a small share our that has a minority stake in the company and the say the big company has to pay them out that’s a minority interest
Negative goodwill would be if their brand name was worth less than zero so if they had such a bad brand name that it was actually worth negative money which is possible maybe you know if you’re a restaurant you have some kind of huge outbreak that kills thousands of people or something at that point that restaurants probably at that point it’s not worth anything
They have a negative on their goodwill no one would want to use that name for anything you’d want the opposite of whatever that name was so that’s negative goodwill to liabilities 171 billion dollars so as we can see between total assets and total liabilities huge difference huge difference we go ahead and look at shareholders equity stock option warren’s preferred
Stock these things are not very important not really to be covered common stock is like dividends and things so retained earnings of 92 billion we have told stockholder equity at the bottom of 119 billion and that’s basically the assets vs. liabilities and how much is left over at the end of the day 119 billion very impressive net tangible assets of 110 billion
There so as you can see apple is a very strong company now what do you look at if you’re making an investment in a company what i look at i look at the cash and cash equivalents i look at the short-term investments i look at the long-term investments i add those together and i subtract excuse me what the short-term debt is in the long-term debt and then i come out
To a number and if that number is three four to one or more toward the cash and cash equivalents that’s a great thing if it’s less than that then it’s a riskier investment and obviously if there’s more debt than cash that’s really risky at that point so you want to find a company that’s cash rich has a lot of investments and it doesn’t have much debt the the better
The ratio is for the cash and the investments that’s safer safer investment so if that company falls on hard times they’re gonna have an easy way bouncing back because they’re not levered they’re not highly in debt those kinds of things now as far as a business i’m gonna look at 80% of these lines the only line items i will not pay attention to are the ones that
I kind of skipped over in this video where i didn’t really talk about them because they’re not but 80% of these line items i will pay attention to in my business so that gives you an understanding of a balance sheet and what things are important if you’re looking at investment if you’re looking at it as your business if it’s your business you need to pay attention
To a lot more it’s very much more important in a stock investment like i said you have to pay attention to that because if you think the company is gonna earn that profit they’re earning forever you’re probably mistaken that would be nice but they might come on hard times and what if they do you have to have a margin of safety and the balance sheet can provide
That margin of safety so anyways i thank you so much for watching guys as i said this is part of a three-part series i did in account statement yesterday balance sheet today cash flow tomorrow and i’m going to put them all together in one video so if you want to watch them all at the same time you can if you haven’t subscribed you may want to i talked a ton about
Personal finance i talked about stocks investments learning type of opportunities like this and i talk about entrepreneurship being a young entrepreneur and i give a lot of tips that way thank you so much for watching guys and have a great day
Transcribed from video
Balance Sheet Tutorial! – Reading a Balance Sheet! By Financial Education