Balance sheet analysis

How to analyze a balance sheet? Let me show you in this balance sheet tutorial covering Apple Inc.

Balance sheet numbers lead to insights on how a company works. Line item details, category totals, financial ratios, all of these give you the building blocks to your balance sheet insights. Whatever part of the balance sheet you are looking at, constantly ask yourself “What is going on here?”, “What is happening on this balance sheet, and how does it compare to what I expected to see?”. Let me show you in this balance sheet tutorial what generic and specific questions to ask. Once you have done your analysis of a balance sheet section, it’s useful to decide on the importance of what you have found: did you come up with a major insight, or something that is good to know but not really a breakthrough, or merely a piece of balance sheet trivia that might soon be forgotten? In that order of importance. Sometimes, combining several pieces of trivia can lead to something that is good to know. And combining several things that are good to know can lead to major insights. You will only find this out after the fact.

⏱️TIMESTAMPS⏱️
00:00 Balance sheet analysis
01:10 Apple balance sheet insights
01:55 What is a balance sheet
02:42 Balance sheet by category
03:29 Apple high level balance sheet
04:20 Current ratio
05:45 Debt to equity ratio
07:02 Balance sheet detail
07:35 Cash and cash equivalents
08:44 Marketable securities
10:52 Accounts receivable
12:53 Inventories
14:35 Working capital
16:01 Other assets
16:53 Property plant and equipment
17:57 Other liabilities
18:40 Deferred revenue
19:10 Debt
20:49 Equity

So what kind of major insights about Apple Inc will we cover in this balance sheet analysis tutorial? What will we have found at the end of the road? First of all: equity on the balance sheet has eroded from $134B to $51B over the past years. Second: “Net cash and marketable securities” is $49B, which is a product of a lot of line items in assets minus a lot of line items in liabilities. And third: working capital at fiscal year-end is ($6.2B). All of that might be a bit cryptic for you at this point. I will show you what each of these balance sheet insights mean, and how I arrived at them.

But first, let’s calibrate on what a balance sheet is, and how it works. The balance sheet is an overview what a company owns and what a company owes at a point in time. What is owned is on the left, what is owed is on the right. You could see the balance sheet as a snapshot, a picture, of the financial health of a company. Often, you need to take a quick look at other financial statements to fully understand the balance sheet. The income statement focuses on how much a company has earned, while the cash flow statement focuses on the sources and uses of cash. Both of these cover the flow during a certain period (usually a quarter, or a year), so they are like a movie.

When reading a balance sheet, start off at the highest level: by category. Current assets and non-current assets on the left. Current liabilities, non-current liabilities, and equity on the right. Current assets are cash and other assets that are expected to be converted to cash within a year. Non-current assets are longer-term investments that cannot be converted into cash quickly. Current liabilities are amounts due to be paid to creditors within twelve months. Non-current liabilities are amounts owed that are to be paid after the period of one year. Equity on the balance sheet is the book value of the shareholder capital.

That’s how the balance sheet works on a conceptual level. Let’s now look into the balance sheet of a real-world company called Apple at the end of its fiscal year 2022. Current assets $135.4 billion, non-current assets $217.4 billion, adding up to total assets of $352.8 billion. Current liabilities $154 billion, non-current liabilities $148.1 billion, equity $50.7 billion. And as the word balance sheet suggests, the total amount owned (on the left) equals the total amount owed (on the right). Both sides of the #balancesheet sum to $352.8 billion. Per the accounting equation: assets equal liabilities plus equity.

Time to zoom into the balance sheet in more detail…

Philip de Vroe (The Finance Storyteller) aims to make accounting, finance and investing enjoyable and easier to understand. Learn the business and accounting vocabulary to join the conversation with your CEO at your company. Understand how financial statements work in order to make better investing decisions. Philip delivers #financetraining in various formats: YouTube videos, livestreams, classroom sessions, and webinars. Connect with me through Linked In!

[he]

this will be my Bible! thank you for making this valuable lesson

[KevinStClair-lnir]

Hands-down the best explain that I've ever heard on how this works.

New sub here!

[Ratatatataw]

Hi, I just want u to know that ur content really helps me a lot. Thank you for making my study easier!

[Michael.design]

Great vid again! Would be nice if you could turn this into a series or something, reviewing a companies balance sheet once in a while. Those of Nike and Google for example :)

[tarekalsherif]

Thank you so much for the professional advanced presentation of Apple financiala❤

[MsGrazy]

Thank you for your help! Very useful video!

[Erez.Levi.Stocks]

How nice that you came back to us, you were missing on YouTube!
It's always fun and very helpful to watch your valuable videos.

I have to tell you that for two months now I have been keeping an eye on this matter that the capital of the shareholders of Apple
has decreased drastically and this raises an important question for me that I wish you would give me your opinion on,

Every year since 2018, Apple has purchased over 70 billion dollars of its own shares, does that mean that if in 2023 they
buy at a price of 70 billion dollars, they enter into a deficit in the shareholders' equity?

The decrease in equity changes a lot of negative data in the Apple company such as P/B and others.

[vikasarsid]

Thank you for this amazing valuable video.

[markmower]

I work with financial statements all the time so I didn't learn much from you today Dutchman. But I did learn this week is don't text "lol" (laugh out loud) to a Dutchman because that means "fun" in your language!

[Mickk]

20:17 : "Those very large ahghagahggah items on the balance sheet!"

[rajjarsocial]

Is there a way to calculate the age of the asset (non-current) based on short & long term loans ?

Might be hard with large companies but should be easier with smaller companies that have few assets like trucks or cars.

[MrWickedSalsa]

Hi The Finance Storyteller,
Have you made a video about "Variance analyses"? or about "balance sheet reconcilliation"?

[simonrutter]

Hello! What would the issue be with shareholder equity getting closer and closer to 0? What risks does that pose to apple given the rest of the financial statements clarifying their true financial situation? Thanks for the great video!

[Erez.Levi.Stocks]

Hello again Philip,
There is something interesting that I wanted to interest you in.
Apple's equity has been declining for several years in a row as you said, but if you check
Microsoft company can be seen that the equity only grew, unlike Apple.
It is very possible that when the capital of Microsoft's shareholders grows too much, they will start paying more dividends and will buy their own shares in very high amounts.

With your permission I have another question, DSO is how long Apple gives a "free loan" to its customers as you said.
If I want to calculate how long Apple receives a "free loan" from its suppliers, what calculation should I make?

[Erez.Levi.Stocks]

Hello Dear Philip.
How are you? i hope you doing well.

I have question about AAPL,
we can see in the last decade Capital expenditure has remained pretty much the same but the revenue keeps growing.
How do you think the company manages to do this?
Usually, companies invest more money to generate more revenue but this does not apply to Apple

I would love to hear your opinion on the matter,
Thanks in advance

[melvinbarnes]

I don't understand why the discovery of $-6B in working capital was a good thing? I would think its the opposite given the liabilities are higher than the assets. What am I missing?

[shivjayvolvloikar]

Hello story teller, can uou please put some light on why apple is buying back its shares??

[KrishanSingh-gzop]

What are " expenses incurred to start a new business"? Are they shown on balance sheet? Are they like godwill & intangibles?

[mertyesilgoren]

one thing i dp not understand is that why minus 6.2 billion working capital is good thing? ypu have yo pay more then you are gonna get