Can you tell what

happened?

Analyze a Business
with Just a Balance Sheet

Helping You Grow In Finance & Accounting 1

About
this guide

In this guide you will learn

how to analyze what’s

happening with a business
using A Balance Sheet

Helping You Grow In Finance & Accounting

Contents
1 What’s a Balance Sheet? 4

What are the sections of the

2
Balance Sheet
7

Why is the Balance Sheet the most

3
insightful of the 3 financial
11
statements?

How can you analyze a business

4
with just a Balance Sheet?
15

Analyze Retained earnings 16

Create a cash flows statement 21
Analyze key ratios 26

Helping You Grow In Finance & Accounting

 1

What’s a Balance
Sheet?

What’s a Balance Sheet?

Josh Aharonoff Swipe

Helping You Grow In Finance & Accounting 4

A Balance Sheet
shows you the
NET WORTH of
a company

It tells you what the company OWNS

(Assets)
And how those assets came into the picture
from amounts contributed by CREDITORS
(Liabilities Capped)
and OWNERS
(Owners Equity Uncapped)

What’s a Balance Sheet?

Helping You Grow In Finance & Accounting

The Balance
Sheet shows
a SNAPSHOT
in time

and includes
CUMULATIVE balances
This is different from an
income statement, which
shows total based off of a
start & end date

What’s a Balance Sheet?

Helping You Grow In Finance & Accounting

 2

What are the

sections of a
Balance Sheet?
What are the sections of a Balance Sheet?

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 What are the sections of a Balance Sheet?

Helping You Grow In Finance & Accounting

 What are the sections of a Balance Sheet?

Helping You Grow In Finance & Accounting

 What are the sections of a Balance Sheet?

Helping You Grow In Finance & Accounting

 3

MOST
IMPORTANT

Income Statements Cash Flows

Balance Sheet

Why is the Balance

Sheet the most
insightful of the 3
financial statements?

Why is the Balance Sheet the most insightful of the 3 financial statements?

Helping You Grow In Finance & Accounting

 The Balance
Sheet contains
new data that
you won’t find
anywhere
else…

And
connects to
the P&L

Why is the Balance Sheet the most insightful of the 3 financial statements?

Helping You Grow In Finance & Accounting

What does
that mean?

A Profit and Loss won’t tell

you anything about the other
2 statements

Why is the Balance Sheet the most insightful of the 3 financial statements?

Helping You Grow In Finance & Accounting

What does
that mean?

And a Statement of Cash Flows doesn’t

contain any NEW data…
it is just a reflection of movements in the
Profit & loss and Balance Sheet

Why is the Balance Sheet the most insightful of the 3 financial statements?

Helping You Grow In Finance & Accounting

 4

Key
Ratios

Analyze
Retained
Earnings

Create a
cash flows
statement

How can you analyze

a business with just
a Balance Sheet?

How can you analyze a business with just a Balance Sheet?

Helping You Grow In Finance & Accounting

 1

Analyze Retained
Earnings

How can you analyze a business with just a Balance Sheet? - Analyze Retained Earnings

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This is really just net
income from the P&L
How can you analyze a business with just a Balance Sheet? - Analyze Retained Earnings

Helping You Grow In Finance & Accounting

Your Retained Earnings Balance is
really just an aggregate of all of your
prior Net Income amounts that
haven’t been distributed via
dividends

BALANCE SHEET Income Statement

Assets Revenue

Cash, Accounts Receivable COGS

(Gross profit - Expenses)
Fixed Assets Gross Profit (Revenue - COGS)

Liabilities Expenses

AP, Credit Cards Net Operating Income

(Other Income - Other Expenses)
Other Current Liabilities Other Income

Owners Equity Other Expense

Common Stock Net Other Income

Retained Earnings Net income (Other Income - Other Expenses)

The Profit and Loss is connected to the Balance

Sheet via Retained Earnings

How can you analyze a business with just a Balance Sheet? - Analyze Retained Earnings

Helping You Grow In Finance & Accounting

When we add this
calculation to our
balance sheet, we can
understand how much
in net income this
company has been
doing each quarter

calc showing net income each period as the difference between retained earnings

How can you analyze a business with just a Balance Sheet? - Analyze Retained Earnings

Helping You Grow In Finance & Accounting

We can take this one
step further and learn
how much we are
growing each quarter!

How can you analyze a business with just a Balance Sheet? - Analyze Retained Earnings

Helping You Grow In Finance & Accounting

 2

Create a cash
flows statement
How can you analyze a business with just a Balance Sheet? - Create a cash flows statement

Helping You Grow In Finance & Accounting

Remember
Your statement of cash flows does not present
you with any NEW data

It is just an output of the data on your P&L and

Balance sheet

How can you analyze a business with just a Balance Sheet? - Create a cash flows statement

Helping You Grow In Finance & Accounting

When we add new columns, we start to
learn so much about what is happening
to a very important metric…

CASH

How can you analyze a business with just a Balance Sheet? - Create a cash flows statement

Helping You Grow In Finance & Accounting

We can see here that despite net
income growing by % each quarter,
our cash flows is actually declining

How can you analyze a business with just a Balance Sheet? - Create a cash flows statement

Helping You Grow In Finance & Accounting

This is mainly due to the fact that
our receivables balance is growing
very quickly, and we are not getting
paid quickly by our customers!

How can you analyze a business with just a Balance Sheet? - Create a cash flows statement

Helping You Grow In Finance & Accounting

 3

Current Ratio

Debt to Equity Ratio

Return on Assets

Operating Cash flows ratio

Return on Equity

Key Ratios

Key Ratios

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There are many ratios
designed to help you
understand QUICKLY
what is happening with
a business as it relates
to a balance sheet

Key Ratios

Helping You Grow In Finance & Accounting

 1

Current Ratio

Key Ratios - Current Ratio

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This ratio compares a
company's current assets
to its current liabilities.

A ratio greater than 1 indicates

that the company has more
current assets than current
liabilities, which is generally
considered a good sign.

Key Ratios - Current Ratio

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 2

Debt to Equity Ratio

Key Ratios - Debt to Equity Ratio

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This ratio compares a
company's total debt to its
shareholders' equity.

A higher debt-to-equity ratio

indicates that the company is
relying more on debt
financing, which can increase
financial risk.

Key Ratios - Debt to Equity Ratio

Helping You Grow In Finance & Accounting

 3

Return on Assets

Key Ratios - Return on Assets

Helping You Grow In Finance & Accounting

This ratio compares a
company's total debt to its
total assets.

A higher debt-to-asset ratio

indicates that the company
has a higher level of debt
relative to its assets, which can
increase financial risk.

Key Ratios - Return on Assets

Helping You Grow In Finance & Accounting

 4

Operating Cash flows ratio

Key Ratios - Operating Cash flows ratio

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This ratio measures a
company's operating cash
flow as a percentage of its
total debt.

A higher operating cash flow

ratio indicates that the
company is generating
enough cash to meet its debt
obligations.

Key Ratios - Operating Cash flows ratio

Helping You Grow In Finance & Accounting

 5

Return on Equity

Key Ratios - Return on Equity

Helping You Grow In Finance & Accounting

This ratio measures a
company's net income as a
percentage of shareholders'
equity.

A higher ROE indicates that

the company is generating
more profit with the money
that shareholders have
invested.

Key Ratios - Return on Equity

Helping You Grow In Finance & Accounting

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You Add?

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