The Balance Sheet

December 26, 2017

What is Balance Sheet Statement

When we look at a company's earnings report, Balance Sheet Statement is one of the most important financial statements to look at, the other two are Income Statement and Cash Flow Statement. Basically the balance sheet will tell us what this company owns (Assets), what the company owes (Liabilities) and the difference is the company's Worth. Below is the equation demonstrating the relationship.

Assets - Liabilities = Worth

Assets

Assets are what the company owns for now like - cash in the bank, land, buildings or products in the inventory, etc. Assets are quantifiable, a.k.a they could be converted into dollars.

Assets are presented in two groups in the statement: Current Assets and Non Current Assets. Below is a snapshot of asset table taken from JD.com Q3 earnings report.

JD.com 2017 Q3 balance sheet statement - Assets

All asset items listed here are ordered by their liquidity. Cash and cash equivalents are most liquidable.

Current Assets

Current Assets are those assets that will be converted into cash in less than 12 month.

The subitem Restricted Cash is usually referred to those cash that are currently held for specific reasons and expected to use in less than 12 months.

Short-term investments refers to the investments that could be converted to cash in one year.

Accounts Receivable refers to the the credit paid from the customer when the goods are shipped to them.

Advance to Suppliers refers to the the money prepaid to the suppliers/producers in advance.

Inventories refer to the goods stashed in the warehouse but expected to be sold within one year. Inventories is an important sign to a retailer company like JD.com.

Non-current Assets are those assets that won't/can't be converted into cash within a year. For example, buildings, lands and those intangible assets like goodwill, intellectual properties.

Liabilities

Liabilities are economic obligations of the enterprise, such as the money that the company owes to lenders, suppliers, employees, etc. Liabilities are presented into Current liabilities and Non-current liabilities in the balance sheet statement. Let's look at JD.com 2017 Q3 earnings report for an example.

JD.com 2017 Q3 balance sheet statement - Liabilities

Current liabilities are those debt have to be paid within one year of the date of the balance sheet.

Short-term borrowings or Short-term debt is usually made up of short-term loans from bank that has to be paid within one year.

Nonrecourse securitization debt is a type of loan secured by collateral.

Accounts payable refers to the debits must be paid to creditors within one year.

Accrued expenses and other current liabilities here means salaries earned by employees buy not yet paid, interest due but not yet paid on bank debt, etc.

Taxes payable is the tax to be paid to the government.

Non-current liabilities means long-term debt that are not needed to be paid within one year.

Deferred Revenues here refers to advance payments for products or services that are to be delivered in the future.

Why it matters

Balance Sheet presents the financial picture of the company and it is vital to understand the financial health of the company especially during the challenge time.