How to analyze a balance sheet in <2 minutes | Brian Feroldi posted on the topic | LinkedIn (2024)

Quick and easy

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How to analyze a balance sheet - FASTWatch for these 10 green flags:1️⃣ More Cash Than DebtFormula: Cash vs DebtWhat: Cash creates options. Debt reduces options. Strong companies don't need much debt.2️⃣ No Accounts ReceivablesFormula: Accounts ReceivablesWhat: Ideally, a company has no accounts receivables, meaning that it gets paid right away for sales and does not issue credit to its customers.3️⃣ No InventoryFormula: InventoryWhat: Ideally, companies do not hold inventory, which ties up company resources.4️⃣ Goodwill Less Than 10% of Total AssetsFormula: Goodwill / Total AssetsWhat: Ideally, a company grows organically, not by acquisition.5️⃣ Current Liabilities Less Than CashFormula: Current Liabilities vs CashWhat: Great companies do not have many liabilities. Ideally, they could pay off all of their liabilities with cash on hand.6️⃣ No Short-Term or Long-Term DebtFormula: Short-Term & Long-Term DebtWhat: Great companies don't need to use debt to fund themselves.7️⃣ Deferred RevenueFormula: Deferred Revenue (Look in Other Liabilities)What: Deferred revenue means a company gets paid before it has to deliver the product/service. That produces cash and is a great sign.8️⃣ No Preferred StockFormula: Preferred StockWhat: Strong companies don't need to issue preferred stock to fund themselves.9️⃣ Retained Earnings Positive & GrowingFormula: Retained EarningsWhat: Strong companies fund themselves through retained earnings. They also grow retained earnings consistently.🔟 Treasury StockFormula: Treasury StockWhat: Treasury stock means a company is buying back stock from shareholders. That's a positive sign.What Green Flags 🇿🇲 did I miss? Let me know below!***P.S. Want to master financial statements analysis? Sign up for my FREE, one-week, e-mail course: https://lnkd.in/gw2VvuHX

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Easy to understand with infographics.

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Quick and easy.

How to analyze a balance sheet - FASTWatch for these 10 green flags:1️⃣ More Cash Than DebtFormula: Cash vs DebtWhat: Cash creates options. Debt reduces options. Strong companies don't need much debt.2️⃣ No Accounts ReceivablesFormula: Accounts ReceivablesWhat: Ideally, a company has no accounts receivables, meaning that it gets paid right away for sales and does not issue credit to its customers.3️⃣ No InventoryFormula: InventoryWhat: Ideally, companies do not hold inventory, which ties up company resources.4️⃣ Goodwill Less Than 10% of Total AssetsFormula: Goodwill / Total AssetsWhat: Ideally, a company grows organically, not by acquisition.5️⃣ Current Liabilities Less Than CashFormula: Current Liabilities vs CashWhat: Great companies do not have many liabilities. Ideally, they could pay off all of their liabilities with cash on hand.6️⃣ No Short-Term or Long-Term DebtFormula: Short-Term & Long-Term DebtWhat: Great companies don't need to use debt to fund themselves.7️⃣ Deferred RevenueFormula: Deferred Revenue (Look in Other Liabilities)What: Deferred revenue means a company gets paid before it has to deliver the product/service. That produces cash and is a great sign.8️⃣ No Preferred StockFormula: Preferred StockWhat: Strong companies don't need to issue preferred stock to fund themselves.9️⃣ Retained Earnings Positive & GrowingFormula: Retained EarningsWhat: Strong companies fund themselves through retained earnings. They also grow retained earnings consistently.🔟 Treasury StockFormula: Treasury StockWhat: Treasury stock means a company is buying back stock from shareholders. That's a positive sign.What Green Flags 🇿🇲 did I miss? Let me know below!***P.S. Want to master financial statements analysis? Join me in January for my cohort-based course, Financial Statement Explained Simply.Details here: https://lnkd.in/efFp6PmJInterested? Send me a direct message for a coupon code.If you found this post useful, please repost ♻️ to share with your audience.

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📊 Mastering the art of analyzing a balance sheet is crucial for investors. Brian Feroldi provides a quick, insightful guide to navigating this financial statement in less than 2 minutes. His 12 key questions are a game-changer for understanding a company’s financial health. Don’t miss out on his upcoming webinar for a deeper dive. #FinancialLiteracy #InvestingTips #BalanceSheetAnalysis

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For the fith answer I think it is subjective because depending on the type of the company it might be an excessive amount of cash that they are holding. For that, they have to analyze the liquidity ratios to see whether it will be wiser to invest that money, to prevent the influence of the inflation. In addition it's also about where the board of directors and the overall management team want to take the company.

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Some key balance sheet questions to ask of your firm, from Brian Feroldi.

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How to analyze a balance sheet - FAST by Brian FeroldiWatch for these 10 green flags:1️⃣ More Cash Than DebtFormula: Cash vs DebtWhat: Cash creates options. Debt reduces options. Strong companies don't need much debt.2️⃣ No Accounts ReceivablesFormula: Accounts ReceivablesWhat: Ideally, a company has no accounts receivables, meaning that it gets paid right away for sales and does not issue credit to its customers.3️⃣ No InventoryFormula: InventoryWhat: Ideally, companies do not hold inventory, which ties up company resources.4️⃣ Goodwill Less Than 10% of Total AssetsFormula: Goodwill / Total AssetsWhat: Ideally, a company grows organically, not by acquisition.5️⃣ Current Liabilities Less Than CashFormula: Current Liabilities vs CashWhat: Great companies do not have many liabilities. Ideally, they could pay off all of their liabilities with cash on hand.6️⃣ No Short-Term or Long-Term DebtFormula: Short-Term & Long-Term DebtWhat: Great companies don't need to use debt to fund themselves.7️⃣ Deferred RevenueFormula: Deferred Revenue (Look in Other Liabilities)What: Deferred revenue means a company gets paid before it has to deliver the product/service. That produces cash and is a great sign.8️⃣ No Preferred StockFormula: Preferred StockWhat: Strong companies don't need to issue preferred stock to fund themselves.9️⃣ Retained Earnings Positive & GrowingFormula: Retained EarningsWhat: Strong companies fund themselves through retained earnings. They also grow retained earnings consistently.🔟 Treasury StockFormula: Treasury StockWhat: Treasury stock means a company is buying back stock from shareholders. That's a positive sign.Follow Brian Feroldi for more great financial content like this.

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How to analyze a balance sheet in <2 minutes:Answer these 12 questions:1: How much cash does the company have?✅ Best possible Answer: More cash than debt.2: Are there accounts receivables? How much?✅ Best possible Answer: None. This means the company is paid in cash.3: Is there inventory? How much?✅ Best possible Answer: None. This means the company doesn't have to worry about managing inventory.4: Is there any goodwill? How much?✅ Best possible Answer: None. This means the company has grown organically.5: What are the company's biggest assets?✅ Best possible Answer: Cash. This means the company has plenty of financial flexibility.6: Does the company have debt? How much? What kind?✅ Best possible Answer: None. This means the company hasn't financed itself with debt.7: Does the company have deferred revenue?✅ Best possible Answer: Yes. It's a sign that the company gets paid before it delivers the product/service.8: What are the company's biggest liabilities?✅ Best possible Answer: Deferred revenue. See question 7.9: How has the company been funded? Debt? Equity?✅ Best possible Answer: Equity. This means the company is free of debt.10: Is there any preferred stock?✅ Best possible Answer: No. Preferred stock is a sign that a company has poor economics.11: Are retained earnings positive and growing?✅ Best possible Answer: Yes. This means the company is profitable and retains its profits for growth.12: Is there any treasury stock?✅ Best possible Answer: Yes. This means the company is buying back stock.Did I miss anything? Let me know in the comments below!****📌 P.S. Want help understanding how to analyze a balance sheet?Join me for a FREE webinar on Tuesday, 12/19: The Investor's Guide To Financial Statements. RSVP here (it's free!): https://lnkd.in/etqqtJq7If this post was helpful, please repost ♻️ to make LinkedIn a better platform for all.

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