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Whether you're walking a tightrope or scribbling in your checkbook, balance is a good thing. And, one of the best ways to evaluate a company is to glance at its balance sheet to see what it owns with what it owes.
The balance sheet is a paragon of simplicity and is made up of three components: assets (the stuff it owns), liabilities (the money it owes), and shareholders' equity (the company's value to its shareholders).
Assets take two forms: short-term (or current) assets and long-term assets. Under short-term, there¿s good ol' hard cash. Then, there¿s something called "cash equivalents," which are assets like short-term bonds that can be sold so quickly, they might as well be cash. There you factor in inventory, which (if you're a reasonably competent business owner) you can sell to customers in return for--you guessed it--cash. (The raw materials a company owns to make that inventory also falls under this category.)
Long-term assets are things that are harder to convert into cash. (Think real estate and equipment.) Long-term assets depreciate, meaning they lose some value over time. Also under the long-term category are what's called intangible assets: things like patents and brands, that are important, but hard to quantify. Accountants earn their stripes figuring out the real overall value of these assets.
Once you know your assets, it's time for liabilities. As with assets, liabilities are separated into short-term or current, and long-term. Current liabilities are what a company owes in that year: Things like payments to employees or accounts payable to suppliers. Long-term liabilities are debts paid over several years.
Shareholders' equity is determined by subtracting the liabilities from the assets. That number represents the value of the company after all its bills are paid.
Obviously, investors should pay close attention to balance sheets. Spikes in the amount of debt carried, or a reduction in shareholders' equity, are usually red flags.
Home / Markets / Economy
Friday, June 13, 2008
The Final Score
The Final Score: In Search of a Lion Tamer
David Asman
FOXBusiness
Forget the presidency. The main executive office in which we need an immediate change is not the White House, but the Fed. Fed Chair Ben Bernanke is smart, but weak. He can’t stand up to Wall Street, to politicians, or even to his own members, who now publicly criticize him. It’s time to get a new Fed head with experience and a more commanding presence.
That man is Robert Rubin. First at Goldman Sachs, and now as chairman of Citigroup, Mr. Rubin has developed an unparalleled understanding of how the Street works, particularly in currency markets. But after millions of dollars and millions of headaches, he’s probably had his fill of Wall Street by now, particularly since there’s going to be a few more years of mopping up after the sub prime mess before the banking industry can begin to do really exciting things again.
So what better way to end up your career as the financial sage to whom all financial sages must give deference…the chairman of the Federal Reserve Board? While Mr. Rubin has been mentioned as a potential treasury secretary for Sen. Barack Obama, he’s been there and done that. But it should be remembered that when he was treasury secretary under Bill Clinton, his finest moments were spent with the international fine tuning that must be orchestrated in dealing with monetary policy.
While I was working on the Wall Street Journal editorial page, we bashed the Clinton presidency pretty regularly. But we never found anything to criticize about Robert Rubin’s support for and defense of the U.S. dollar. This extremely delicate task was handled by Rubin with greater skill than by any treasury secretary in my lifetime. So why not transfer those skills to the Fed? Ben’s a fine academic. But what’s needed right now is a lion tamer, not a professor. Bob Rubin has trained a whole circus of lions, both on Wall Street and in the more brutal world of financial diplomacy. It’s time to get him back into the ring.
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