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Stock Financials - Balance Sheet Definitions

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Balance Sheet

This statement shows a company's financial position at a specific date. It is important to know how much cash and short-term investments a company has. A company with plenty of cash can invest in future growth, make an acquisition or fund research and development. Large cash positions may indicate a rich cash flow business and conservative management or may indicate upcoming financial difficulty, particularly when seen with increasing payables and shrinking receivables. A large cash amount may make the company a takeover candidate. Generally, it is not desirable to see receivables or inventory growth outpacing revenue growth as it is a warning sign that demand may be weakening. Sharp cuts in bad debt allowances should be examined closely. Slowing sales while inventories pile up is also a red flag for investors. Fixed assets can be overstated or understated but usually relate to core operations. Long-term investments may indicate assets unrelated to the company's basic business. Close attention should be paid to the economic value of goodwill and intangibles.

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It is useful to see that payables are kept under control. Dramatic increases in payables may indicate financial stress. Look at the balance sheet in terms of liquidity and debt. Compare current assets and current liabilities to determine if the company has adequate working capital to meet short-term obligations. Look for companies that have greater assets than liabilities. Beware of excessive borrowing as measured by debt ratios. Companies with significant other long-term liabilities should be investigated more closely.

The disparity between the equity and market value of a company reflects the difference between actual and potential earnings power. Therefore, there is no meaningful rule of thumb to measure equity or book value.

Balance Sheet Definitions


Cash - This represents currency, coins, bank balances, negotiable instruments and cheques, also includes term deposits, treasury bills and any item classified as cash by the company. Does not include cash held in trust or restricted cash.

Accounts receivable - Money owed by customers for goods or services purchased on credit for which payment is expected within one year. Also includes notes receivable not directly related to operations, receivables from related entities not in the nature of trade and current portion of long-term receivables. For financial companies will include accrued interest, dividends receivable and investment income due and accrued and installment receivable.

Marketable securities - This account includes bonds, stocks and other marketable securities, and securities purchased under agreements to resell.

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Inventories - The amount of raw materials, work in progress and finished goods being held for sale at a given time, includes supplies, work done on contracts in excess of billings, contracts in progress, and deferred contract costs for contractors.

Total Current assets - The total value of cash, accounts receivable, inventories, and other assets that could be converted to cash by the company in less than one year.

Property, plant and equipment - This is the fixed assets of the company, includes assets under capital lease, deferred exploration and development costs, and construction in progress. For real estate companies this includes all income producing property. For non-financial companies it is presented gross and net of accumulated depreciation/depletion/amortization.

Accumulated depreciation/depletion/amortization - This is the total amount of depreciation/depletion/amortization that has been recorded for a fixed asset since its date of acquisition.

Long-term investments - This item includes long-term marketable securities, long-term investments at cost, receivables under equipment leases, and all long-term interest-bearing receivables and advances.

Loans to customers - This account is used for banking and finance sector companies, and includes all loans and long term interest bearing receivables, other than accounts receivable.

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Intangible Assets - These are assets that can not be seen, touched or physically measured, this includes goodwill, patents, trademarks, licenses, franchises, share issue expenses, organization costs, and incorporation costs.

Total assets - This is the total book value of all property owned by a company. Since many are depreciated or carried on the books at the purchase price rather than market value, asset values can be understated on balance sheets.


Accounts payable - Money owed by a company for goods or services purchased on credit that is payable within one year. This account includes accruals and payables to related entities, and does not include advances from related entities or current portion of long term payables unless in the nature of trade.

Short-term borrowings - All debt payable within one year, includes bank indebtedness, notes payable, loans and advances payable, cheques issued and outstanding, other short-term interest-bearing debt, and loans and advances from related entities not in the nature of trade. The current portion of long term is separate.

Current portion of long-term debt - All current years long term debt payable and current portion of capital lease obligations.

Total current liabilities - The total amount owed to suppliers, creditors, for accounts payable and other debts due within one year.

Customers' deposits - This account includes demand deposits, short-term deposits, r.s.p. deposits, guaranteed investment certificates, and any deposits left on account from customers, but does not include reinsurers' deposits.

Actuarial liabilities and policy benefits - Actuarial liabilities are also known as present value of liabilities under insurance contracts and amounts required to provide for unmatured obligations. This item also includes benefits and claims in course of payment, provision for unreported claims, policyholders amounts left on deposit, provision for future policy dividends and experience rating refunds.

Long-term debt - Long term debt includes long-term debt, advances, obligations under capital lease, obligations under contract, secured debt, mortgages payable, and other interest-bearing long-term debt from related and third parties.

Deferred revenue - Any form of deferred revenue as classified by the company could include customer prepayments, advances on contracts, deferred government assistance, and take or pay contracts.

Minority interest - This represents a significant but non-controlling ownership of less than 50% of a company's voting shares by either an investor or another company, includes preferred share dividends of subsidiaries.

Total liabilities - Total of all liability accounts, excluding preferred shares not presented as equity.

Common stock - This represents the dollar value of securities which have ownership in the company. In general, a corporation has two types of shares, common and preferred. The common shares usually entitle the shareholders to vote at shareholders meetings. The common shares have a discretionary dividend.

Preferred stock - A class of share capital that entitles the owners to a fixed dividend ahead of the company's common shares and to a stated dollar value per share in the event of liquidation. Usually do not have voting rights unless a stated number of dividends have been omitted.

Retained earnings - Retained earnings are the accumulated net income retained for reinvestment in a business, rather than being paid out in dividends to stockholders.

Total shareholders' equity - This is the value of ownership interest of common and preferred stockholders in a company. The difference between the assets and liabilities of a company which is sometimes called net worth. Equity divided by the number of shares outstanding gives equity per share or book value per share.

ENDING NUMBER OF SHARES Basic - Total number of common shares outstanding at the end of the fiscal period.

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