Bob Sloan, S3 Founder, Shares Balance Sheet Basics


According to Bob Sloan, S3 founder, most investors have seen a company balance sheet before—even if they failed to realize it at the time! Certainly, most investors have been in the position of receiving a company’s annual report, flipping over to the back page, and seeing a long, incomprehensible page of numbers and tables.

This page is really not as incomprehensible as you might think. This is the balance sheet—and prudent investors know how to read and understand one. In the paragraphs that follow, Bob Sloan, S3 founder and balance sheet expert, provides some quick insights into the balance sheet, aimed at those who have never really considered a balance sheet before.

Bob Sloan, S3 Founder, Shares Balance Sheet Fundamentals

Bob Sloan, S3 Founder discusses importance of balance sheetEvery business has three important documents that need to be examined. These documents are the balance sheet, the income statement, and the cash flow statement. Business owners use these documents in tandem to ascertain the basic financial status of the company. Investors use them for much the same reason.

The balance sheet offers some particularly important pieces of information. It reveals both how much money a company has, and also how much it owes. On top of that, it shows how much is left over to stockholders—something that is of obvious interest to those who have invested in the company!

Getting the Balance Sheet

Knowing how to read a balance sheet is obviously important—but there is something more fundamental still, and that is actually obtaining the balance sheet. According to Sloan, there are three places in which investors might look for a balance sheet:

-          The Annual Report, which is sent to investors, and is usually available on the company website

-          The 10K, which is filed with the SEC

-          The 10Q, also filed with the SEC

Looking at the Balance Sheet

For those who have obtained a balance sheet and are looking at it for the first time, it may seem a little overwhelming. The important thing to remember is that the balance sheet is really focused on just three basic pieces of information:

-          It shows what the company has, information that is summarized as Assets

-          It shows the outstanding debts and obligations that the company has, or its Liabilities

-          It shows what is left over for the owners, information that is usually summarized on the Liabilities side of the page

Balance Sheet Terminology

With that basic lay of the land out of the way, it is also important to make a few notes about balance sheet terminology. One of the most important things for investors to know, Sloan says, is what the term current means in the context of a balance sheet.

-          Current assets are defined in terms of their liquidity. The most current assets of all are cash, or monies in easily accessible accounts such as checking accounts. Beyond that, any asset that can be easily sold and converted into cash, within the span of a year, is defined as a current asset.

-          Some assets are not as easy to sell off and turn into cash within the span of a year. Real estate, buildings, and machinery often fall into this camp.

-          The same kind of terminology is used when describing liabilities. Some liabilities are defined as long-term, while others are current.

-          A current liability is one that must be paid off within the span of a year. This may mean a payment due to a vendor or a subcontractor, or a credit owed to a customer.

-          On the other hand, companies may also have liabilities that do not have to be paid off in the next year. If you have a 30-year mortgage but have paid off five years of it, for example, this may not qualify as a current asset.

How a Balance Sheet Balances

Obviously, the idea of a balance sheet is that it balances. That is, the totals on each side of the page should add up. On the one hand, there are the assets; on the other, liabilities and owners’ equity. On balance, there should be no discrepancy between these terms.

How Balance Sheets are Used

Finally, it is worth noting that balance sheets are not strictly for use by investors. Actually, they are filed with the SEC. Additionally, they are used by business owners to make informed decisions about corporate expansion and day-to-day operations. Nevertheless, the balance sheet can be a critically important resource for investors.


Bob Sloan is a thought leader in the fields of risk mitigation and investment banking, as well as a respected financial columnist and pundit, and the author of numerous articles and books. Through his work at S3, Sloan works with some of the most sophisticated, high-end investors in the world, among them banks and fund managers. His company is currently responsible for advising clients who manage tens of billions of dollars, and his reputation for vigilant, hands-on investment consultation is without match. Bob Sloan, S3 founder and managing partner, is well-versed in issues of finance and regulation.

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