The Motley Fool Previous Page The Balance Sheet (Drip Port) January 20, 2000

By Vince Hanks ( TMFElwood)

NORTHVILLE, MI (Jan. 20, 2000) -- The balance sheet is essentially a snapshot of a company's financial position as of a particular date. It helps determine if a company has enough money to continue funding its own growth or if it will need to take on debt, issue debt, or return to the market with additional stock offerings in order to plow ahead. By painting a picture of a company's current financial health, it will aid you in determining whether a company is capable of generating value for shareholders.

Like Luke vs. Darth, offense vs. defense, and "Tastes Great" vs. "Less Filling," a balance sheet consists of two opposing forces: assets vs. liabilities. We'll tackle them one at a time.


Assets are sources of value that can benefit a company down the road. There are two major categories of assets: current and noncurrent. Current assets are relatively liquid, meaning they can easily be converted into cash. Current assets are expected to be converted into cash or used up within one year. Noncurrent assets, conversely, are not easily converted into cash. These can include property, equipment, goodwill, and deferred charges.

Current Assets

Assets that will be used up within the next year or easily converted into cash within one operating cycle are considered current. An operating cycle is the time it takes to sell a product or service and collect cash from that sale. It can last anywhere from 60 to 180 days or more.

Current assets can also be viewed as operating assets because they fund the day-to-day operation of its business. Running low on current assets will force a company to seek other sources of fuel for its operations, usually leading t