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Fundamental Analysis: Balance Sheet
By A Singaporean Stockmarket Investor (ASSI)  •  February 19, 2010
[caption id="attachment_4188" align="alignright" width="150" caption="Photo by lepiaf.geo"]Photo by lepiaf.geo[/caption]A company's balance sheet is a record of its assets and liabilities. Basically, if we look at how much the assets are worth and deduct the total value of the liabilities, we will arrive at the net worth of the company. Net worth or the book value of the company is also known as shareholders' equity. Under assets, first, we see Current Assets. Current Assets are cash and other assets which can be converted into cash within a very short time. Usually, they are listed in the balance sheet in order of liquidity with cash being the first item as it is the most liquid. Secondly, we have Non-current Assets. These are assets which cannot be converted into cash within a very short time. One thing that value investors look out for is how much cash and cash equivalents a company has. Having a lot of cash is usually a sign of strength. The company will have the ability to seize business opportunities and will be able to go over rough patches in the business cycle relatively intact. Next on the list is inventory or the goods which are in the company's warehouse which it sells to customers. In business, we say that we cannot do business with an empty wagon. Our wagon has to be stocked and that's our inventory. However, we do not want our wagon to be overstocked as well. Goods also run the risk of becoming obsolete in many cases. Accounts Receivables is next. When the company sells goods to its customers, very often, the customers are given credit terms. In businesses which have a strong retail bias, this might be a very small amount if it exists at all since they collect cash for all their sales. We want to keep an eye on this because if most of a company's Current Assets are in Accounts Receivables, we have to question the financial health of its customers and how long does it usually take before payments are made. Read more...

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By A Singaporean Stockmarket Investor (ASSI)
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