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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 / Industrials
Tuesday, May 13, 2008
Top 3 Stimulus-check Destinations? Gas, Groceries, Debt
Jennifer Waters
MarketWatch
CHICAGO--Consumers pinched by soaring prices for gasoline, granola and green grapes are increasingly looking at their stimulus checks as a means of making ends meet for at least a month or so.
A growing number of consumers told pollsters in at least three separate surveys recently that they will use the money the government is sending them in coming weeks to pay down debt, fill up the family car and stock the kitchen pantry.
That smacks at the government's objective to kindle economic growth with frivolous spending on electronics, clothing or a night out on the town. More important, however, is that it underscores the incredibly tight financial condition many Americans are finding themselves in as prices for day-to-day living expenses reach unparalleled levels.
"The rising cost of groceries and gasoline means that discretionary spending is taking a back seat to necessities," said Tracy Mullin, chief executive of the National Retail Federation. "For many consumers struggling with rising bills and [falling] home values, economic stimulus checks could not come at a better time."
In a survey released Tuesday, the NRF said that 42% more respondents, or 17.2 million people, said late last month that they plan to use a chunk of their tax rebate checks to gas up the car compared with 12.1 million who said so in a similar survey taken in February.
Meanwhile, another 3% more people said in April that they would spend the money on everyday items like milk, bread and rice than those expecting to do so in February.
In a Harris Poll released May 5, two in five respondents, or 38%, said they will use a lump of their rebate checks to skim off some nonmortgage debt like credit cards, school loans and medical bills. Another 35% said their rebate checks were going straight into the savings account.
"In fact, 21% of those getting checks will be using somewhere between three-quarters and the entire rebate amount toward reducing debt," according to the Harris poll.
And in yet another survey conducted by Technomic Inc., the food-service and restaurant research and consulting company, more than one-third of all respondents said, sorry, they weren't spending their rebate checks at fine-dining or even fast-food restaurants. Their checks were going to -- yawn -- the savings account. Another 29% said they would chip away at debt while 23% said they would use that cash for "necessities."
Necessities come first
"A high proportion of consumers are strapped," said Bob Goldin, executive vice president at Technomic. "Consider the sheer magnitude to consumers of just filling up the car when it costs $60 or $65. Restaurants are seen as an area where consumers can scale back."
He's worried too that the worst is far from over. "How much can the consumer absorb these price increases."
Indeed, consumers are pulling out their credit cards to cover the costs at the grocery store as well as the clothing store. At the same time, more than one-third of consumers told BIGResearch they were putting off buying new fashions, electronic games and devices, not to mention new cars.
Maybe more distressing are consumer projections. Technomic respondents aren't excited about the near future. They said, by 54%, that they expected federal income tax to increase, while another 49% expect state income taxes will rise. More alarming is that 63% believe property taxes will rise while a whopping 83% told Technomic that they believed the cost of living will swing higher.
And salary and wages? Only 32% say they expect to see any kind of increase in the coming months.
Copyright © 2008 MarketWatch, Inc.
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