I heard today while listening to an accounting podcast that a balance sheet (or maybe it was a cash-flow document) can be used to determine if a company has enough money to pay its employees. Since these types of reports are frequently publicized, I thought it might help in investing, or even looking for a job. Can someone provide me a pair of examples (one good, one bad), and walk me though how to understand such a document?
How to read a balance sheet to determine if a company has enough money to keep paying their employees?
1I think you need to go look at a couple of cash flow statements and balance sheets, then put some details in this question. Right now your question is essentially, "someone go find me some financial statements then teach me finance." The quarterly statements are 10-Q the annuals are 10-K.– quidMar 10, 2017 at 17:49
I heard today while listening to an accounting podcast that a balance sheet... can be used to determine if a company has enough money to pay its employees.
The "money" that you're looking at is specifically cash on the balance sheet. The cash flows document mentioned is just a more-finance-related document that explains how we ended at cash on the balance sheet.
...even looking for a job
This is critical, that i don't believe many people look at when searching for a job. Using the ratios listed below can (and many others), one can determine if the business they are applying for will be around in the next five years.
Quick ratio: [(Cash + Marketable Securities + Accounts Receivable) / Current Liabilities] Current ratio: [Current Assets/ Current Liabilities] Debt to equity ratio: [Total Liabilities/ Total Owner's Equity]
Can someone provide me a pair of examples (one good)?
My favorite example of a high cash company is Nintendo. Rolling at 570 Billion USD IN CASH ALONE is astonishing. Using the ratios we can see how well they are doing.
Quick ratio: [(570B + 339B + 39B) / 98B] = 9.673 In immediate assets only they can pay their debts 9 times over. Current ratio: [1.02T/ 98B] = 10.408 They can pay their debts 10 times over. Debt to equity ratio: [136B/ 1.16TT] = 0.119 12% of their assets are financed by debt.
Can someone provide me a pair of examples (one bad)?
Tesla is a good example of the later on being cash poor.
Quick ratio: [(3.5B + 0 + .499B) / 5.83B] = .686 In immediate assets only, Tesla can 70% of their debts. Current ratio: [6.26B/ 5.83B] = 1.074 They can pay their debts 1.074 times over (If all assets are sold). Debt to equity ratio: [16.75B/ 5.91B] = 2.834 Most of their assets are financed by debt.
Walk me though how to understand such a document?
*Note: This question is highly complex and will take months of reading to fully comprehend the components that make up the financial statements. I would recommend that this question be posted completely separate.
So it's kind of like asking; if the company did something risky today; and failed at it; and they sold all their assets; how at risk would they be for not being able to pay off all their debts? Which includes, incidentally, paying their workers. So if they can pay off their debts using just their assets, they have more wiggle room to take risks in business?– leeand00Mar 10, 2017 at 19:27
2Downvote because "570 billion USD" is off the mark by more than a factor 100. The link you showed clearly quotes Japenese Yen. 570 Billion Yen is just below 5 billion USD. Mar 10, 2017 at 23:58
Nice call @gnasher729, I wasn't reading it that thoroughly and assumed it was in USD. While this is true, the ratios are still accurate and can be used to assess industries and companies.– LiamMar 12, 2017 at 23:40