How to analyze a balance sheet in <2 minutes:

Answer these 12 questions:

1: How much cash does the company have?

✅ Best possible Answer: More cash than debt.

2: Are there accounts receivables? How much?

✅ Best possible Answer: None. This means the company is paid in cash.

3: Is there inventory? How much?

✅ Best possible Answer: None. This means the company doesn't have to worry about managing inventory.

4: Is there any goodwill? How much?

✅ Best possible Answer: None. This means the company has grown organically.

5: What are the company's biggest assets?

✅ Best possible Answer: Cash. This means the company has plenty of financial flexibility.

6: Does the company have debt? How much? What kind?

✅ Best possible Answer: None. This means the company hasn't financed itself with debt.

7: Does the company have deferred revenue?

✅ Best possible Answer: Yes. It's a sign that the company gets paid before it delivers the product/service.

8: What are the company's biggest liabilities?

✅ Best possible Answer: Deferred revenue. See question 7.

9: How has the company been funded? Debt? Equity?

✅ Best possible Answer: Equity. This means the company is free of debt.

10: Is there any preferred stock?

✅ Best possible Answer: No. Preferred stock is a sign that a company has poor economics.

11: Are retained earnings positive and growing?

✅ Best possible Answer: Yes. This means the company is profitable and retains its profits for growth.

12: Is there any treasury stock?

✅ Best possible Answer: Yes. This means the company is buying back stock.

Did I miss anything? Let me know in the comments below!

***

Want an eBook of my most popular accounting infographics? Grab it here (free):

→ longtermmindset.co/fsse…