Understanding the Balance Sheet
A balance sheet is a financial statement that shows a company's assets, liabilities, and equity at a specific point in time. It's important to understand the balance sheet to see how your business is doing financially. In our lemonade stand example, Ackman explains that the balance sheet shows that the business has $500 in cash from selling stock, owes $250 in debt, and has $1,000 in shareholder equity.
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If you're new to finance and investing, you might feel overwhelmed by all the jargon and technical terms. However, understanding the basics can help you make informed decisions about your money. In this article, we'll explore the fundamentals of finance and investing using a simple example: a lemonade stand by William Ackman.
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Understanding equity
Equity has different meanings depending on the context. Shareholder's equity is the most common type of equity - it represents the amount of money that a company's shareholders will get if all of the assets were liquidated and all the debt was paid off.
Equity can be found...
THE DEBT FACTOR
How much does the company owe, and how much does it own? Debt versus equity. It’s just the kind of thing a loan officer would want to know about you in deciding if you are a good credit risk.
A normal corporate balance sheet has two sides. On the left side are the assets (inventories, recei...
The FINAL CHECKLIST
STOCKS IN GENERAL
• The p/e ratio. Is it high or low for this particular company and for similar companies in the same industry.
• The percentage of institutional ownership. The lower the better.
• Whether insiders are buying and whether the company itself is buying back its own...
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