Companies produce three major financial statements that reflect their business activities and profitability for each accounting period. These statements are the 澳洲幸运5官方开奖结果体彩网:balance sheet, income statement, and statement of cash flows. The 澳洲幸运5官方开奖结果体彩网:cash flow statement shows how well a company𓃲 manages cash to fund operations and any expansion efforts. In this article, we'll e🐻xamine the balance sheet and income statement and their differences.

Balance Sheet

Investors and creditors analyze the balance sheet to determine how well management is putting a company's resources to work. The balance sheet shows assets, liabilities, and 澳洲幸运5官方开奖结果体彩网:shareholders' equity. Total assets should equal the sum of 澳洲幸运5官方开奖结果体彩网:total liabilities and shareholders' equity. The liabilities section reflects how those assets are financ൲ed.💞 Shareholders' equity is the difference between assets and liabilities, or the money left over for shareholders for the company to repay all its debts. 

To best analyze the key areas of the balance sheet and what they tell us as investors, we'll look at an example.

Example: Apple Inc.

Below is the balance sheet for Apple (AAPL) at the end of its 2017 fiscal year.

Current Assets

The top s🥃ection con♌tains current assets, which are short-term assets typically used up in one year or less. 

• Total current assets were $128.6 billion (highlighted in blue).
• Cash came to roughly $20.3 billion.
• 澳洲幸运5官方开奖结果体彩网:Marketable securities (short-term investments) approached $54 billion. 
• 澳洲幸运5官方开奖结果体彩网:Accounts receivable is money owed to Apple for selling its products and services and came to $17.8 billion. A receivable could be due in 30, 60, or 90 days depending on the agreed terms. Investors want to see receivables increase over time, as this indicates rising sales. But we don't want to see aging receivables.
• Inventories of $4.8 billion might be raw materials or supplies used in making products or finished goods waiting to be sold or shipped. 

Long-term Assets

Next on the balance sheet are 澳洲幸运5官方开奖结果体彩网:long-term assets.

• Long-term investments totaled $194.7 billion.
• 澳洲幸运5官方开奖结果体彩网:Property, plant, and equipment (PPE) are called 澳洲幸运5官方开奖结果体彩网:fixed assets because they're not consumed within one year and they generate revenue over the long term. Apple recorded $33.7 billion in PPE. 
• Other assets and 澳洲幸运5官方开奖结果体彩网:intangible assets, which include trademarks and intellectual capital, round out the asset section.
• Total assets were $375.3 billion at the end of Apple's 2017 fiscal year.

Current Liabilities

Current liabilities are short-term liabilities du👍e within one year. 

• Current liabilities totaled $100.8 billion (highlighted in purple).  
• 澳洲幸运5官方开奖结果体彩网:Accounts payable are short-term debt owed by Apple to suppliers, which came to $49 billion.  
• 澳洲幸运5官方开奖结果体彩网:Accrued expenses are expenses yet to be paid, but have a high probability of being paid. Apple recorded $25.7 billion in accrued expenses.

Long-term Liabilities 

Not all of Apple's long-term liabilities are broken out, but they typically include: 

• Debt including 澳洲幸运5官方开奖结果体彩网:long-term debt and bank indebtedness, which totaled $97 billion for Apple.
• Rent, taxes, and utilities payable.
• Wages payable.
• 澳洲幸运5官方开奖结果体彩网:Dividends payable.

Shareholders' equity

• 澳洲幸运5官方开奖结果体彩网:Retained earnings are the money not paid out as 澳洲幸运5官方开奖结果体彩网:dividends, but held back to be reinvested in the business or pay off debt. Apple recorded $98.3 billion in retained earnings.
• 澳洲幸运5官方开奖结果体彩网:Shareholders' equity is the sum of total assets minus total liabilities and is helpful in calculating a company's 澳洲幸运5官方开奖结果体彩网:financial health. Shareholders' equity represents the net value or net worth of a company, which for Apple was $134 billion. This is the money left over for shareholders, assuming the company was to pay off all liabilities in the event of liquidation.

Income Statement

The 澳洲幸运5官方开奖结果体彩网:income statement, often called the profit and loss statement, shows the revenues, costs, and expenses over a period which is typically a fiscal quarter or 💮a fiscal year. The income statement tells investors whether a company is generating a profit or loss. Also, the income statement provides valuable information about revenue, sales, and expenses.

J.C. Penney Company

Below is the income statement for J.C. Penny (JCP) for its fiscal year ending Feb. 3, 2018. The top section 𝕴includes total revenue or sales for the pe✤riod. 

• 澳洲幸运5官方开奖结果体彩网:Net sales (i.e. revenue) came to $12.5 billion. Sales and revenue are also called the top line due to their location at the top of the income statement.
• 澳洲幸运5官方开奖结果体彩网:Cost of Goods Sold was $8.17 billion. This represents the costs of producing goods and services during the periods. COGS are direct costs and are only the expenses involved in the production process.
• Selling, general, and administrative costs are the other expenditures not directly involved in production. For J.C. Penney, SG&A was $3.4 billion. 
• Total costs or expenses were $12.39 billion. 
• 澳洲幸运5官方开奖结果体彩网:Operating income was $116 million after subtracting total expenses from total revenue.
• 澳洲幸运5官方开奖结果体彩网:Net interest expense of $325 million represents the cost of debt servicing and put J.C. Penney in the red for the year.
• 澳洲幸运5官方开奖结果体彩网:Net income for the year was a loss of $116 million. Net income is also called net profit or the 澳洲幸运5官方开奖结果体彩网:bottom line because it's the final number and located at the bottom of the income statement.

J.C. Penney is a great example of the importance of looking at the complete financial picture. Although $12.5 billion in revenue appears impressive, debt servicing costs meant the company took a loss for the year. It's worth noting that examining the financials of any company works best when comparing over multiple periods and against other companies within the same industry. 

The Bottom Line

The balance sheet displays what a company owns (assets) and owes (liabilities), as well as long-term investments. Investors scrutinize the balance sheet for indications of the eff♒ectiveness of management in utilizing debt and assets to generate revenue that gets carried over to the income statement.

The income statement 澳洲幸运5官方开奖结果体彩网:shows the financial health of💫 a compan🐷y and whether or not a company is profitable. Both revenue and expenses are monitored closely. It's crucial for management to grow revenue while keeping costs under control. For example, revenue might be growing, but if expenses rise faster than revenue, the company may 💖eventually incur a loss. Investors and analysts🗹 keep a close eye on the operating section of the income statement to gauge management's performance.

However, investors and analysts scrutinize the balance sheet just as closely, as both the balance sheet and income statement together provide a fuller picture of a company's current health and future prospects.