Balance Sheet Glossary
The balance sheet is a snapshot of what a company owns (assets), what it owes (liabilities), and what belongs to shareholders (equity) at a specific point in time. The fundamental equation is always:
For value investors, the balance sheet reveals the financial strength and resilience of a business. A company can have great earnings but still go bankrupt if its balance sheet is weak. Conversely, a strong balance sheet provides a margin of safety during economic downturns and gives management flexibility to invest in growth or return capital to shareholders.
Current Assets
Current assets are resources expected to be converted into cash or consumed within one year. They represent the company’s short-term liquidity.
Cash and Cash Equivalents
Money in bank accounts and highly liquid investments that can be converted to cash immediately (Treasury bills, money market funds, etc.).
Why value investors care: Cash is the ultimate margin of safety. Companies with substantial cash reserves can weather downturns, make opportunistic acquisitions, and avoid dilutive financing. Value investors calculate “net cash” (cash minus total debt) to understand the true financial position. A company trading near or below its net cash value may present a deep value opportunity — you’re essentially getting the business for free.
Short-Term Investments
Investments the company plans to convert to cash within one year, such as Treasury securities, commercial paper, or marketable securities.
Why value investors care: Short-term investments are nearly as good as cash for liquidity purposes. Combined with cash, they form the readily available liquidity buffer. Value investors add these to cash when calculating the company’s liquid resources. However, the nature of these investments matters — securities that can lose value (like equities) are riskier than government bonds.
Cash and Short-Term Investments
The combined total of the company’s most liquid assets.
Why value investors care: This is the total readily available liquidity. Value investors compare this to total debt to gauge financial risk, and to market capitalization to identify potential deep value situations. A company where cash and short-term investments represent a significant portion of the market cap may be undervalued by the market.
Accounts Receivables
Money owed to the company by customers for goods or services already delivered but not yet paid for.
Why value investors care: Receivables are expected future cash, but they carry credit risk — some customers may not pay. Value investors track receivables as a percentage of revenue over time. Rising receivables faster than revenue can signal that the company is extending more generous payment terms to maintain sales (a quality concern) or that customers are struggling to pay. The “days sales outstanding” (receivables / daily revenue) metric helps assess collection efficiency.
Net Receivables
Accounts receivable minus an allowance for doubtful accounts (estimated uncollectible amounts).
Why value investors care: This is the more realistic estimate of what the company will actually collect. A growing allowance for doubtful accounts can indicate deteriorating customer quality. Value investors compare net receivables to gross receivables to see how conservative (or aggressive) the company’s bad debt estimates are.
Other Receivables
Receivables from sources other than customer sales, such as tax refunds, insurance claims, or employee advances.
Why value investors care: Usually a minor line item, but if it’s unusually large, it’s worth investigating. Large “other receivables” can sometimes mask related-party transactions or aggressive revenue recognition.
Inventory
Raw materials, work-in-progress, and finished goods held for sale.
Why value investors care: Inventory ties up capital and carries risks — it can become obsolete, spoil, or require markdowns. Rising inventory faster than sales growth is a classic warning sign that demand is weakening or the company is overproducing. Value investors track the inventory-to-sales ratio and look at inventory turnover (cost of goods sold / average inventory). High turnover suggests efficient operations; low turnover suggests potential write-down risk.
Prepaids
Payments made in advance for expenses that will be recognized in future periods, such as insurance premiums, rent, or subscriptions.
Why value investors care: Typically a small and unremarkable line item. However, unusually large prepaid balances can indicate aggressive accounting — the company may be capitalizing expenses that should be recognized immediately. Compare prepaids as a percentage of total assets to industry peers.
Other Current Assets
Miscellaneous short-term assets that don’t fit into the standard categories above.
Why value investors care: As with any “other” category, it’s worth checking the footnotes if this number is material. It could contain items like assets held for sale, hedging instruments, or other short-lived assets.
Total Current Assets
The sum of all assets expected to be converted to cash within one year.
Why value investors care: Total current assets, compared to total current liabilities, determine the company’s short-term liquidity position. The current ratio (current assets / current liabilities) is a fundamental measure of financial health. A ratio below 1.0 means the company may struggle to meet short-term obligations. Value investors generally prefer a current ratio of 1.5 or higher for most industries, though some businesses (like subscription services) can operate safely with lower ratios due to predictable cash flows.
Non-Current Assets
Non-current (long-term) assets are resources the company expects to hold and use for more than one year. They represent the long-term productive base of the business.
Property, Plant and Equipment (Net)
The net value of physical assets like buildings, machinery, vehicles, and land, after subtracting accumulated depreciation.
Why value investors care: PP&E reveals how capital-intensive the business is. Companies with heavy PP&E relative to revenue require significant ongoing investment just to maintain operations. Value investors prefer asset-light businesses because they generate more free cash flow per dollar of revenue. However, PP&E can also represent a barrier to entry — competitors need similar capital investments to compete. Compare PP&E growth to revenue growth: if PP&E grows faster, the company may be over-investing.
Goodwill
The premium paid above the fair market value of identifiable assets when acquiring another company. It represents intangible value like brand reputation, customer relationships, and synergies.
Why value investors care: Goodwill is the most scrutinized balance sheet item for value investors. Large goodwill balances indicate a history of acquisitions, and the critical question is whether those acquisitions created or destroyed value. Goodwill impairments (write-downs) are an admission that the company overpaid. Serial acquirers with large and growing goodwill balances deserve extra skepticism. Compare goodwill to total assets and total equity — if goodwill represents a majority of equity, the company’s book value is largely intangible and may be less reliable as a valuation anchor.
Intangible Assets
Non-physical assets with identifiable value, such as patents, trademarks, copyrights, customer lists, and licenses.
Why value investors care: Like goodwill, intangible assets require scrutiny. Some intangibles (like patents in pharmaceutical companies) represent genuine economic value. Others may be inflated or face impairment risk. Value investors should assess whether intangible assets are generating returns above their carrying cost and how much of the company’s total asset base is intangible.
Goodwill and Intangible Assets
The combined total of all intangible balance sheet items.
Why value investors care: When this figure represents a large share of total assets, the company’s tangible book value (total equity minus intangibles) may be much lower than reported equity. Value investors calculating price-to-book ratios often use tangible book value for a more conservative assessment, especially for acquisition-heavy companies.
Long-Term Investments
Investments the company intends to hold for more than one year, including equity stakes in other companies, long-term bonds, or real estate.
Why value investors care: Long-term investments can represent hidden value or hidden risk. Strategic equity stakes (like Berkshire Hathaway’s stock portfolio) may be worth more than their carrying value. However, illiquid investments or stakes in struggling companies can become impairments. Value investors should understand what these investments are and whether they generate adequate returns.
Tax Assets
Deferred tax assets and other tax-related benefits that will reduce future tax payments.
Why value investors care: Tax assets arise from tax loss carryforwards, timing differences, or tax credits. A large deferred tax asset means the company expects to pay less tax in the future — but only if it generates enough taxable income to use them. Value investors assess whether tax assets are realistic or whether the company may need to write them down, which would reduce book value.
Other Non-Current Assets
Long-term assets that don’t fit into the standard categories.
Why value investors care: Check the footnotes for material amounts. These could include pension assets, restricted cash, deposits, or long-term prepaid contracts.
Total Non-Current Assets
The sum of all assets the company expects to hold for more than one year.
Why value investors care: The composition of non-current assets reveals the nature of the business. Capital-intensive businesses have high PP&E; acquisition-driven businesses have high goodwill; technology businesses may have high intangible assets. Value investors compare non-current asset composition to peers to understand the business model and identify potential risks.
Total Assets
Everything the company owns.
Why value investors care: Total assets is the denominator in Return on Assets (ROA = net income / total assets), a key profitability metric. It also determines how leveraged the company is when compared to total debt. Value investors look for companies that generate high returns on their asset base, as this indicates efficient capital deployment.
Current Liabilities
Current liabilities are obligations the company must pay within one year. They represent the company’s near-term financial obligations.
Account Payables
Money the company owes to suppliers for goods and services already received.
Why value investors care: Payables are a form of free financing from suppliers. A company that can extend its payment terms (high days payable outstanding) while maintaining good supplier relationships has a cash flow advantage. Value investors track payables as a percentage of cost of revenue over time. Very high payables relative to industry norms may indicate the company is stretching its suppliers, which could lead to supply chain issues.
Accrued Expenses
Expenses that have been incurred but not yet paid, such as salaries, utilities, or interest.
Why value investors care: Accrued expenses are normal operating liabilities. Value investors watch for unusually large accrued expenses, which could indicate upcoming cash outflows or, conversely, aggressive cost accrual to manage earnings (understating current period costs by accruing them for the future, or vice versa).
Tax Payables
Income taxes and other tax obligations owed but not yet paid.
Why value investors care: Large tax payables relative to income tax expense might indicate the company is deferring tax payments. Compare to peers and track over time. Persistent growth in tax payables without corresponding tax payments could signal future cash outflows.
Short-Term Debt
Debt obligations due within one year, including short-term loans, revolving credit facilities, and the current portion of long-term debt.
Why value investors care: Short-term debt creates refinancing risk — the company must either repay or refinance this debt soon. If credit markets tighten (as they did in 2008), companies with heavy short-term debt exposure can face liquidity crises. Value investors prefer companies with minimal short-term debt relative to their cash position.
Capital Lease Obligations (Current)
The portion of capital (finance) lease payments due within the next year.
Why value investors care: Capital lease obligations are essentially debt. Value investors add these to other debt when calculating total leverage. Heavy lease obligations indicate the company relies on leasing rather than owning assets, which affects both the income statement (lease expense) and cash flow.
Deferred Revenue
Cash received from customers for goods or services that have not yet been delivered.
Why value investors care: Deferred revenue is one of the best liabilities a company can have — it means customers have already paid and the company just needs to deliver. Growing deferred revenue, particularly for subscription and SaaS businesses, signals strong future revenue and customer commitment. Value investors view rising deferred revenue as a positive leading indicator.
Other Current Liabilities
Miscellaneous short-term obligations not classified elsewhere.
Why value investors care: Investigate if this balance is material. It could contain warranty reserves, litigation accruals, or other contingent liabilities that reveal operational risks.
Other Payables
Payables other than accounts payable, such as amounts owed to non-trade creditors.
Why value investors care: Typically minor, but can include related-party payables or unusual obligations worth understanding.
Total Payables
All amounts owed to creditors for goods, services, and other obligations.
Why value investors care: Total payables help calculate working capital needs and the cash conversion cycle. Companies that manage payables effectively — paying on time but not too early — optimize their cash flow.
Total Current Liabilities
The sum of all obligations due within one year.
Why value investors care: Compare to total current assets (the current ratio) and to cash (the cash ratio). A company should have enough current assets to cover its current liabilities with a reasonable margin. Rising current liabilities without proportional growth in current assets is a deteriorating liquidity signal.
Non-Current Liabilities
Non-current liabilities are obligations due beyond one year. They represent the company’s long-term financial commitments.
Long-Term Debt
Bonds, term loans, and other borrowings due after one year.
Why value investors care: Long-term debt is the primary measure of financial leverage. Value investors calculate debt-to-equity, debt-to-EBITDA, and interest coverage ratios to assess debt sustainability. A general guideline: debt-to-EBITDA below 2-3x is conservative; above 4-5x raises concerns. More important than the absolute level is the company’s ability to service its debt from operating cash flow. Check the maturity schedule in the footnotes — a “debt wall” (large maturities coming due in a short period) creates refinancing risk.
Capital Lease Obligations (Non-Current)
The long-term portion of capital (finance) lease obligations.
Why value investors care: These are long-term debt equivalents. After IFRS 16 and ASC 842 lease accounting standards, most leases appear on the balance sheet, making companies appear more leveraged. Value investors should include these when calculating total debt and coverage ratios.
Capital Lease Obligations
The total of all finance lease obligations.
Why value investors care: The total lease burden reveals hidden leverage. Companies in retail, airlines, and restaurants often have enormous lease obligations. Value investors treat these as debt when assessing the true leverage of the business.
Deferred Revenue (Non-Current)
Cash received for goods or services to be delivered more than one year in the future.
Why value investors care: Long-term deferred revenue indicates multi-year customer contracts, which provide revenue visibility and business stability. This is particularly common in enterprise software, defense contracting, and subscription businesses. Growing long-term deferred revenue is a strong positive signal for business durability.
Deferred Tax Liabilities (Non-Current)
Taxes that are owed but not yet due, arising from timing differences between financial reporting and tax reporting.
Why value investors care: Deferred tax liabilities represent future tax payments. For most companies, these grow gradually and don’t pose a cash flow threat. However, a large and growing deferred tax liability means the company has been paying less tax than its financial statements suggest. If the timing differences reverse (e.g., accelerated depreciation benefits expire), the company will face higher actual tax payments in the future.
Other Non-Current Liabilities
Long-term obligations not classified in the standard categories, such as pension liabilities, environmental obligations, or legal reserves.
Why value investors care: Pension obligations can be enormous hidden liabilities, especially for older industrial companies. Environmental and legal liabilities can be unpredictable and material. Always check the footnotes for details on this line item.
Total Non-Current Liabilities
The sum of all obligations due beyond one year.
Why value investors care: Long-term liabilities determine the company’s structural leverage. Compare to equity and to long-term assets to assess whether the company is financing growth sustainably. A company with non-current liabilities exceeding total equity is heavily leveraged.
Total Liabilities
All obligations the company owes.
Why value investors care: Total liabilities, compared to total assets and total equity, reveal the company’s overall financial leverage. The debt-to-equity ratio (total liabilities / total equity) is a fundamental risk measure. Value investors generally prefer companies with lower leverage because they have more capacity to weather downturns and take advantage of opportunities.
Debt Metrics
Total Debt
All interest-bearing financial obligations.
Why value investors care: Total debt is the headline leverage number. Compare it to EBITDA (debt/EBITDA ratio), equity (debt/equity ratio), and cash flow (debt/FCF ratio). Companies that can comfortably service and repay their debt generate excess value for equity holders. Companies drowning in debt destroy equity value through interest payments and refinancing risk.
Net Debt
Total debt minus the cash available to repay it.
Why value investors care: Net debt is a more accurate picture of financial leverage because it offsets debt with readily available cash. A company with negative net debt (more cash than debt) has a “net cash” position — an enviable financial position. Net debt is used to calculate Enterprise Value (market cap + net debt), which is the denominator in many valuation multiples. Value investors favor companies with low or negative net debt as they provide a built-in margin of safety.
Total Investments
The combined total of all investment holdings.
Why value investors care: Total investments can represent significant hidden value, especially for conglomerates and financial companies. Value investors should assess whether investments are generating adequate returns and whether they are liquid enough to provide flexibility. In some cases, the investment portfolio alone may justify the company’s market capitalization (a “sum of the parts” analysis).
Shareholders’ Equity
Equity represents the residual interest in the company’s assets after deducting all liabilities — it’s what belongs to shareholders.
Common Stock
The par value of all issued common shares.
Why value investors care: The par value itself is typically nominal (often $0.01 per share) and not economically meaningful. However, the number of shares issued, tracked here at par value, helps assess the total equity structure.
Additional Paid-In Capital
The amount shareholders have paid above the par value of common stock when shares were originally issued.
Why value investors care: APIC reflects how much capital shareholders have invested in the company through stock issuances. A large APIC relative to retained earnings may indicate the company has relied more on external capital raises than on internally generated profits — which can signal a less self-sustaining business model.
Retained Earnings
Cumulative profits the company has reinvested rather than distributed as dividends.
Why value investors care: Retained earnings represent the total wealth created and retained by the company over its lifetime. Consistently growing retained earnings signal a profitable company that reinvests in itself. Negative retained earnings (an accumulated deficit) indicate the company has lost more money than it has ever earned — a serious concern. Buffett considers the ability to generate high returns on retained earnings as one of the best indicators of a great business.
Accumulated Other Comprehensive Income/Loss
Unrealized gains and losses from items like foreign currency translation, pension adjustments, and unrealized investment gains/losses that bypass the income statement.
Why value investors care: AOCI can significantly affect total equity without appearing on the income statement. Large unrealized losses in AOCI reduce true book value. Value investors should monitor AOCI trends, especially for companies with significant foreign operations (currency effects) or large investment portfolios (unrealized gain/loss fluctuations).
Other Total Stockholders’ Equity
Miscellaneous equity items not captured in the standard categories.
Why value investors care: Typically small, but investigate if material. Could include equity from employee benefit plans, warrants, or other unusual items.
Treasury Stock
Shares the company has repurchased from the open market but not retired. Recorded as a negative number, reducing total equity.
Why value investors care: Treasury stock indicates share buybacks — typically a positive signal that management believes the stock is undervalued and is returning capital to shareholders. Value investors track buyback activity relative to the stock price: buybacks at low valuations create value; buybacks at high valuations destroy it. Companies that consistently buy back shares at reasonable prices, steadily reducing the share count, create a compounding effect for remaining shareholders.
Preferred Stock
Equity issued to preferred shareholders, who receive dividends before common shareholders and have priority in liquidation.
Why value investors care: Preferred stock dilutes the claim of common shareholders. Preferred dividends must be paid before common dividends, reducing cash available to ordinary investors. Large preferred stock balances relative to common equity may indicate the company needed to offer preferred terms to raise capital, which can be a sign of financial weakness.
Minority Interest
The portion of equity in subsidiaries owned by outside (non-controlling) shareholders.
Why value investors care: Minority interest means the parent company doesn’t own 100% of a subsidiary’s earnings and assets. Value investors should be aware that reported net income includes the entire subsidiary’s earnings, but minority interest represents the portion that doesn’t belong to common shareholders. This affects the accuracy of profitability metrics and valuation.
Total Stockholders’ Equity
The equity attributable to the company’s common and preferred shareholders.
Why value investors care: This is the book value of the equity holders’ claim on the company’s assets. The price-to-book ratio (market cap / total stockholders’ equity) is a classic value metric. Companies trading below book value may be undervalued — but only if the assets are worth what the balance sheet says. Value investors must assess asset quality before relying on book value.
Total Equity
The total equity including both controlling and non-controlling interests.
Why value investors care: Total equity is the “what shareholders own” side of the balance sheet equation. Return on Equity (ROE = net income / total equity) is a key performance measure. Consistently high ROE indicates the company creates value with the capital invested. However, high ROE from high leverage (low equity due to lots of debt) is riskier than high ROE from genuine profitability.
Total Liabilities and Total Equity
This must equal Total Assets — the fundamental balance sheet identity.
Why value investors care: If this doesn’t equal total assets, there’s an error in the financial data. This serves as a basic integrity check on the financial statements.
Reporting Metadata
Date
The date the balance sheet snapshot was taken (typically the last day of the quarter or fiscal year).
Period
The reporting frequency — annual (FY) or quarterly (Q1, Q2, Q3, Q4).
Fiscal Year
The fiscal year to which the snapshot belongs.
Filing Date
The date the financial report was filed with the SEC.
Accepted Date
The date the SEC accepted the filing.
CIK
The Central Index Key — a unique SEC identifier for the filing entity.
Symbol
The stock ticker symbol.
Reported Currency
The currency denomination of all figures.
Why value investors care about metadata: The balance sheet date matters because it’s a point-in-time snapshot — the picture could look very different a month earlier or later. Comparing balance sheets across multiple quarters reveals trends in liquidity, leverage, and asset composition. Always use the same period type (annual-to-annual or quarter-to-quarter) for meaningful comparisons.