Understanding Financial Statements

In this section, we will break down the components of the balance sheet. The balance sheet is broadly divided into assets and liabilities. Assets generate future value for the company while liabilities are obligations that have to be repaid in the future. If there are more assets than liabilities, the remainder is the shareholders equity, which are the remaining claims to owners.


Assets are usually divided into current assets and non-current assets and then divided into further categories:

Current Assets
Non-current Assets


Liabilities are also usually divided into current liabilities and non-current liabilities and then divided into further categories:‚Äč

Current Liabilities
Non-current Liabilities

Shareholders Equity

The shareholders equity is what remains after you subtract the liabilities from the assets or the remaining claims accruing to shareholders.

  • Stock and paid in capital: securities representing equity ownership in a company

  • Retained earnings: earnings that are reinvested in the company rather than given out as dividends or used to pay back debt

  • Treasury Stock: stock that the company buys back and can be retired

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