Guide to Analyzing a Balance Sheet

Learn the basics before you begin to analyze

It's difficult to analyze a balance sheet if you're not familiar with the basic terms and concepts involved, such as accounts receivable, cash and cash equivalents, intangible assets, and liabilities.

I recommend: Check out the Motley Fool on balance sheet basics or learn more about the concepts and terms behind a balance sheet through AmeritradeFinancial.

Watch assets, liabilities and equity

A balance sheet includes a catalog of the assets of a company plus the portion of assets financed by equity and by debt. A balance sheet typically will list assets, which can include property, equipment and other assets, on the left side of the sheet. Liability and stockholder equity, which can include current liabilities, long-term liabilities and stockholders' equity, is listed on the right. The total on the left side must equal the total on the right side.

I recommend: Go to Investopedia.com for a detailed discussion of assets, liabilities and equities on a balance sheet. Learn about balance sheet structure from Wikipedia.

Calculate the ratios

There are several tools available to help calculate important ratios, including return on assets (ROA) and return on equity (ROE). These tools can be used to analyze profitability, liquidity and long-term financial strength.

I recommend: Learn the six basic tools to analyze a balance sheet, plus the six basic tools to analyze a financial statement, from the University of Florida.

Find balance sheets online

There are many places to look for a company's balance sheet, including its annual report and company information or investor relations section of its Web site.

I recommend: Check out About.com to find ways to acquire a copy of a firm's balance sheet and other financials. Search the federal government's EDGAR website or Hoovers to find a specific public company's balance sheet.