If you are going to invest, it helps to have an understanding of some of the financial terms which are used to report on and describe a companies business. I thought it might be useful for those of you who are newer to investing to spend some time each week giving you an introduction to some of them.

I thought we'd start with the Balance Sheet. Have you ever wondered why it is called that? Do you know what is supposed to "balance" and why that is important? Do you know where to find it?

The balance sheet balances a list of what a company owns (it's assets), against what it owes (It's liabilities and stockholders equity) On a Balance sheet, you will see the information broken down into those three categories. A Balance sheet "balances" because the totals in the three categories satisfy this equation:

Assets=Liabilities + Stockholders Equity

Assets are things like cash in bank accounts, Accounts Receivable, Inventory, and Property, Plant and Equipment. Liabilities are things like Accounts Payable, Bonds payable and Notes payable. Stockholders Equity is the amount of the assets that belong to the owners of the company (which includes your investment club, as a stockholder).

The balance sheet is a snapshot of a companies financial status at a particular point in time. Companies must include a balance sheet each quarter when they report their earnings. Changes in a balance sheet from year to year or even quarter to quarter can tell you a story about how the company you have invested in is being managed.

Tomorrow, a suggestion for a club activity to help you learn more about the balance sheet.

--
Laurie Frederiksen
Invest with your friends!
www.bivio.com

Follow us on twitter! www.twitter.com/bivio