# Balance Sheet

The balance sheet compares the assets of the company against the sources of those assets. Sources include borrowing money to earning the money. Learn about the different classes of assets, liabilities, and the owner’s equity. Included with this are balance sheet ratios and proper analysis of balance sheet accounts.

## Intrinsic Value – Balance Sheet Fundamentals

Novice and unsophisticated investors place greater reliance on net profits over the balance sheet to determine intrinsic value. However, most so-called experts forget what intrinsic value means; intrinsic value refers to the universally accepted core value of a company. In many cases, this can be easily derived from the balance sheet. If not derived from the balance sheet, the balance sheet can act as additional assurance that certain intrinsic value formulas are superior and best suited given the balance sheet information.

Understanding how a balance sheet is laid out, works and reports this information greatly assists value investors with determining intrinsic value. Gaining knowledge about balance sheet fundamentals takes a value investor to the next level of comprehension of value investing.

This is the second part in a series about intrinsic value. It is the first in a four-part series about the balance sheet and different intrinsic value formulas that are tied to the balance sheet. The next lesson in this balance sheet series delves deep into analysis of asset matrixes and proper interpretation of that information. It also includes how to tie the asset matrix to the liability layout. Understanding this relationship allows the value investor to apply certain intrinsic value formulas which are explained and illustrated.

## Value Investing – Financial Statements (Lesson 10)

To comprehend financial information, first the member must understand their general purpose and how they are prepared. The first section of this lesson introduces financial statements and their two primary purposes. In addition, pertinent issues are introduced that a company must endure to finally present a well prepared set of reports. Next, each of the five major types of financial statements are introduced. Most companies present a core set of five that include a 1) balance sheet, 2) income statement, 3) cash flows statement, 4) statement of retained earnings, and 5) a set of notes to clarify the four other statements. Some go further and present industry and highly customized financial reports. These are covered in Phase Two of this program along with the Pool’s information center that members have access to on this website. Finally, this lesson covers the importance of a few key bits of information and how these critical financial values impact the respective buy/sell models value investors develop.

Many stock market investors are not familiar with financial reports; they rely on accountants to provide the results in laymen’s terms in order to make decisions. This program is designed to build the confidence of non-accountant types to not only understand financial reports but to appreciate and ultimately, eagerly await their arrival each quarter. Again, Phase Two of this program goes in-depth about financial statements and how to interpret the information.

This lesson utilizes the financial reports as presented for the year 2019 from the Coca-Cola company. Coke is a DOW company and is considered one of the best stocks to own if you can purchase the stock at a good price. Coke is a dividend based purchase and often buyers purchase Coca-Cola stock to hold and receive dividends.

## Open Job Cost Status Report

The Open Job Cost Status Report identifies a project’s actual costs of construction, amounts borrowed or financed, and any customer payments made to date. The net result is the contractor’s net investment into the respective project.

## Bookkeeping – Closing the Books (Lesson 69)

The closing process is designed to finalize the financial information for that period of time. It involves correction of errors, posting omissions and confirming balances
of accounts. Once done, the bookkeeper and management can prepare reports with a high level of confidence with their accuracy.

## Bookkeeping – Proper Balance Sheet Presentation (Lesson 20)

The balance sheet serves as an historical report. It identifies the accumulated change in value since inception. The balance sheet is organized into two halves and both sides must be equal in value. In addition, the balance sheet is a snapshot of the financial condition at a single moment in time along the lifetime timeline of the company.

## Bookkeeping – Debits and Credits in Equity Accounts (Lesson 10)

The equity section of the balance sheet identifies the approximate dollar value of net worth accrued to the owners/investors. Equity accounts can have both credit and debit balances. By far the most preferred is a credit value. Debit values does not mean that something is wrong, actually it can be a great sign of a good operation.