Balance Sheet Formula Balance Sheet Check Formula Excel Balance Sheet Formula Excel Balance Sheet Equation Excel Balance Sheet Calculation Example Microsoft
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In order to make your statements comply with these rules and to give them an air of authority you will have to hire a Certified Public Accountant or C.P.A. and have them compile review or audit your financial statements. What this means is that the C.P.A. takes your statements and then makes some cosmetic changes in order to present them in the form proscribed by US Generally Accepted Accounting Principles or if appropriate one of a number of alternate forms and then issues an opinion on them. The opinion will vary depending upon the type of engagement you hired them to do. The standard opinion for a compilation is "we took this pile of crap and made it pretty but we re not saying that it makes any sense" while the standard opinion for an audit is "sure we took a look and everything seems OK but please don t sue us if we re wrong!" while a review falls between the two.
Now there are additional considerations like depreciation for buildings machinery and equipment and the value of receivables and other moneys owed to you but that is the general rule. How Liabilities Are Valued The next step is to make a list of items that your business owes or obligations that it has. This could be money that you owe to your suppliers for products and services or money that you owe to your employees for services performed or money that you owe to the government for taxes or or money that you owe to the bank or another lender. It could even be money that the business owes to you as an owner. Remember what I said before about conservatism? Well this counts for liabilities as well only in this case the concern is that liabilities are undervalued or even worse unrecognized and unrecorded. The general rule of liabilities is that they are included at amortized cost which should be equal to the amount owed on them at that moment in time.
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For most of these kinds of items a company will book their value at whatever was paid for it. While items that depreciate like computers are usually de-valued over a period of time that piece of land will likely appreciate over time and the current value may not be reflected on the balance sheet. This can make the company more valuable than it appears (some value investors refer to these as "asset plays"). For financial companies a ton of assumptions are made on the balance sheet. The actual value of a loan is very difficult to calculate due to variable interest rates risk of default risk of early payment etc. Take that reality and multiply it by the millions of loans a large bank has outstanding and you begin to see why investing in banks is such a difficult and risky endeavor. However since the Magic Formula throws out financial stocks we won t discuss that in much detail here. One other thing to be generally aware of is that both assets and liabilities are categorized as either "current" or "long-term".