How to Analyze the Balance Sheet to Pick Stocks

The balance sheet is the most underrated of the three financial statements and YOUR opportunity for finding the best stocks and avoiding the worst traps with some simple balance sheet analysis.

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Of the three financial statements, investors spend the least amount of time with balance sheet analysis. No idea why! The balance sheet shows you what you actually own in a company, the actual investor assets. Wouldn’t you want to know what’s in it?

In this video, I’ll explain the balance sheet and give you a complete tutorial. We’ll start with the balance sheet basics and what it shows. I’ll be using the Apple balance sheet for examples and go through each section; assets, liabilities and stockholders’ equity. I’ll show you how to analyze the balance sheet and then reveal the balance sheet ratios you need to know.

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Unlike the other financial statements, the balance sheet is a snapshot in time. It shows everything the company owns (assets), everything it owes (liabilities) and everything left over for investors. This is obviously important because it gives you a clear idea of what you’re buying when you invest.

Not only can balance sheet analysis help you find the best stocks to buy but it can also help you avoid the worst investing traps. You can avoid companies that book a lot of intangible assets, those depending on an arbitrary valuation to boost their book value. You can avoid companies getting in trouble with debt that could be heading for bankruptcy.

Don’t avoid the balance sheet like so many investors. It’s not as popular as the income statement or cash flows but is just as important.

Check out the other two videos in our financial statement analysis tutorials:
Ultimate Guide to Income Statement Analysis https://youtu.be/qq1lD5NG-CY
Cash Flow Statement Explained https://youtu.be/RjZGOH2-aa8

0:00 Balance Sheet Analysis for Stocks
2:08 What is the Balance Sheet?
2:28 What does the Balance Sheet Show Investors?
3:27 Apple Balance Sheet Analysis Example
3:38 What are Assets on the Balance Sheet?
8:04 What are Balance Sheet Liabilities?
9:03 What is Stockholders’ Equity?
9:16 How to Use the Balance Sheet to Analyze Stocks
12:14 5 Must Know Balance Sheet Ratios

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Joseph Hogue, CFA spent nearly a decade as an investment analyst for institutional firms and banks. He now helps people understand their financial lives through debt payoff strategies, investing and ways to save more money. He has appeared on Bloomberg and on sites like CNBC and Morningstar. He holds the Chartered Financial Analyst (CFA) designation and is a veteran of the Marine Corps.
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