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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 / Industries / Energy
Tuesday, June 10, 2008
Oil Tumbles on Strengthening Dollar, Saudi Output
Associated Press
![Oil Rig Mountain [276]](/images/stories/oil_rig_mountain.jpg)
Oil prices fell Tuesday, giving up an earlier advance as the dollar held its gains against the euro and the Energy Department slashed its oil consumption projections. Retail gasoline prices rose to a new record over $4.04 a gallon.
The dollar rose on recent supportive comments by U.S. officials, prompting selling by investors who had bought commodities such as oil as a hedge against inflation. Also, a stronger dollar makes oil more expensive to investors overseas.
The Energy Department, in a monthly report, indicated that high prices are cutting oil consumption more than expected in the industrialized world. Consumption is now expected to fall by 240,000 barrels a day in 2008; last month, the department forecast consumption would be unchanged from 2007 levels.
That report calmed a market that earlier sent oil up more than $3 on a projection by the International Energy Agency that said global demand will continue to rise, especially in China.
Light, sweet crude for July delivery fell $2.55 to $131.80 a barrel on the New York Mercantile Exchange.
Reports that Saudi Arabia has increased oil output by 500,000 barrels a day this quarter, 200,000 barrels a day more than previously thought, added some pressure to the market. Still, analysts said the Saudi move was only a peripheral factor in Tuesday's price drop.
"A couple hundred thousand barrels just isn't enough," said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates in Galena, Ill. "The main item here today is the dollar strengthening."
"The dollar is the supreme driver here," said Phil Flynn, an analyst at Alaron Trading Corp. in Chicago.
Linda Rafield, senior oil analyst at Platts, the energy research arm of McGraw-Hill Cos., said the Saudi news didn't surprise the market.
Meanwhile, the IEA, in its own monthly report, cut its demand growth forecasts, projecting that global demand for petroleum products such as gasoline, diesel and heating oil will grow by 0.9 percent, or 800,000 barrels a day, in 2008. That's down from the 1.2 percent, or 1 million barrels, the IEA forecast earlier this year.
However, the IEA, an energy adviser to Western industrialized nations, also said demand for fuel for reconstruction work in the aftermath of May's earthquake will boost Chinese oil demand by 5.5 percent this year, a slightly higher forecast than in previous reports.
"A 5.5 percent increase in one of the largest consumers of oil in the world is a lot of barrels of oil," Ritterbusch said.
But the gains were difficult to sustain in the face of a stronger dollar, analysts said.
"You don't get a lot of ... additional buying when the dollar is strong," Ritterbusch said.
Gas prices, meanwhile, advanced another 2 cents into record territory Tuesday, reaching a new record national average of $4.043, according to a survey of stations by AAA and the Oil Price Information Service. Gas prices are following crude futures higher, and aren't likely to stop rising until crude prices peak.
"When crude tops out, we'll finally start getting some relief at the pump," Ritterbusch said.
In other Nymex trading, July gasoline futures fell 5.71 cents to $3.3369 a gallon, and July heating oil futures fell 4.57 cents to $3.8313 a gallon. July natural gas futures fell 15.9 cents to $12.445 per 1,000 cubic feet.
In London, July Brent crude fell $2.68 to $131.24 on the ICE Futures exchange.
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