How to read a balance sheet: Alphabet Inc case study

Published 2018-03-20
How to read and analyze a balance sheet of a company? This balance sheet tutorial is a companion video to “How to read an annual report”, “How to read an income statement” and “How to read a cash flow statement”, and covers the 2017 balance sheet of Alphabet Inc (the parent company of amongst others Google). The balance sheet is a fascinating financial statement, you can learn a lot from it about the state of health of a company. Learning to read a balance sheet takes practice, practice and practice, and some understanding of the key terminology. You have come to the right place for that!

⏱️TIMESTAMPS⏱️
00:00 Introduction
00:35 What is a balance sheet
01:41 Where to find balance sheet information
02:09 Assets on the balance sheet
03:17 Cash and marketable securities
04:12 Property and equipment
05:01 Goodwill
06:32 Balance sheet analysis checklist
06:52 Liabilities and equity
08:03 Income taxes payable
08:57 Accrued expenses and other liabilities
10:02 Current ratio example
10:50 Balance sheet analysis summary

The balance sheet is an overview of what a company owns and what a company owes at a specific point in time, in this case study December 31st, 2017. When I analyze a balance sheet, there are several things I always check, for each company I look at: the balance sheet total, which should be the same left and right (what a company owns equals what a company owes); the current ratio, a good indicator of a company’s liquidity; and equity as a percentage of the balance sheet total, which gives an indication of how the company is financed, and what its level of robustness is. Then I look specifically at several items on the assets side, and several items on the liabilities and equity side. What those specific items are, I only decide after taking a first look at the balance sheet of the company under review. It depends on the context.

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Philip de Vroe (The Finance Storyteller) aims to make strategy, finance and leadership enjoyable and easier to understand. Learn the business vocabulary to join the conversation with your CEO at your company. Understand how financial statements work in order to make better stock market investment decisions. Philip delivers training in various formats: YouTube videos, classroom sessions, webinars, and business simulations. Connect with me through Linked In!

All Comments (21)
  • @test-mm7bv
    thanks for the very insightful company analysis! tech companies look almost like asset managers.
  • @lisas1667
    Thank you! This was very clearly stated, and I will use this knowledge every day! You're awesome for doing this!
  • @ItsYesiG021
    Thank you so much for the invaluable information that you provide. You have sparked a love for finance!
  • @kirthikraja6889
    Great video once again.I would like to keep on praising you for your wonderful explanations.
  • @steveuhlman2368
    Hello, thank you for taking the time to teach this! Very well done.
  • @unclechris1755
    Thank you for your sharing of analysis of the 3 financial statements of Alphabet Inc. They are all professional presentations. 2 thumbs up!! Please allow me to be greedy a bit, may I request you to go further, based on those figures, to discuss the Discounted Cash Flow model as well the WACC. These two reports are important to forecast the value of the company in the near future, and also make the analysis as a whole perfect. By the way, you did the current ratio on the balance sheet, do we need to do ratios of other items? Do we need to do ratios on the other two financial statements as well? Thanks again for your kindness.
  • @diliu6298
    just wanna say greattttt Video!!! Thanks so much!!!
  • @sirl1364
    This case study analysis was awesome , very helpful. Though an thought came into mind : wht do companies like google and apple have majority of their assets in liquid assets like cash ? Isnt cash depreciating in value ?
  • @mozpassion8996
    Is there any correlation between current ratio and CFOA? When the Current ratio is below 1 and CFOA is positive (and increased), can we say the company have liquidity problems?
  • @Ironbuket
    How do you know what people have rounded their balance sheets to? How do you know if 7,100 is 7,100 , 7million or 7billion?
  • @Go4Yourz
    Thank you this was great! Are there any videos explaining pension liabilities?
  • Another great explanation in clear terms. I also watched your most helpful video on "how to make videos" but already knew that you followed a highly-structured approach, which seems to be based on Minto's pyramid principle. Are you in fact using this to structure your thinking and content? An observation in this particular video, and it is not a criticism, is that your 'key line' or 'To Do List' at about 1:20 mentions 5 items but you deal with the second item last. Is there a specific reason that you listed the items in this order but dealt with them in precisely the same sequence expect for the second item? Another question that I have is also from a non-financial person perspective. When I attended a (very poorly presented) course on financial statements I recall being told that the Net Profit is "a balancing item in the Balance Sheet". The example used on that course showed this clearly as a line item ('net profit for the period' ? equal in value to the line in the IS) but almost every published BS I look at does not list this as a line item. Could you please help me understand why and how does this line item for "net profit for the period" become 'distributed' among the line items shown in a typical BS? The current example company I am analyzing does however have an item for "cash and cash equivalents" that precisely matches with that in the CF statement.
  • First , Thanks for a such useful topic. I have two related questions, First, the ratio number indicates at current ratio is valid for next three quarters, or to the end of fiscal year? İf the answer is the Fiscal year, then where we can get the most recent statistics include current ratio before 1st quarter report?