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How to Read a Balance Sheet

Understanding a company’s balance sheet can help you separate good stocks from the bad. Learn how to read a balance sheet and become a better investor.

While a company’s income statement presents the current results of a company’s operation, there are other financial statements that can present how a company is performing using other factors. The balance sheet, for example, depicts the financial strength (or weakness) of a company.

So what’s in a balance sheet?

A company’s balance sheet has three main sections:

  • Assets: Items of economic value that are owned by a company.
  • Liabilities: A company’s financial obligations.
  • Equity: Sometimes referred to as shareholders’ equity, this represents the net accounting value of the company.
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