Small business opportunities are attractive at times. However, you must be careful to always look before you step, especially when dealing in financial matters. If you're interested in carrying out some background research before you put your money into an investment, you should take a look at the balance sheets of the companies that are catching your eye. Do not blind yourself to the total liabilities of these companies. In order to get a good idea of whether a company is performing solidly, you should perform a net worth calculation on it.
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Things you need
- Updated Balance Sheet for the Company
- Online Financial Calculator
Locate a company's balance sheet for free. Balance sheets are not hard to find. Yahoo! Finance supplies excellent information for you to use to size up small business opportunities, or simply to search through for fun. Here, you can find everything you will need to make a net worth calculation for one of any number of companies. Total assets & total liabilities are listed neatly. When you enter this website, type in the company's stock code in the search engine that says "Get Quotes", then select the "Balance Sheet" option from the following page which lists the company's financial info. (If used with an online financial calculator, this information can give you a valuable snapshot of the company's position and its history.)
Identify the company's total assets. Reading balance sheets is simple business if you know what you're looking for. Basically, a balance sheet is divided into two parts: assets & liabilities. If you are trying to arrive at a net worth calculation for a business, you will first need to find the company's total assets on its balance sheet. Make sure that you locate the company's total assets, not its total current assets. These are two different things. If you want to double-check the math on the balance sheet, you can use an online financial calculator.
Identify the company's total liabilities. The second variable you'll need to turn your attention to in order to arrive at a net worth calculation for any company is its total liabilities. Just as with total assets, you will want to make sure to observe the company's total liabilities and ignore its total current liabilities. When gauging whether small business opportunities are viable investments, you will want to be firmly aware of the company's long-term debts as well as its current operating costs. Balance sheets will break down liabilities by subject, so you can get a clear idea of where the company's money is going. Once again, it's a good idea to double-check the math for this figure by using an online financial calculator.
Subtract the Total Liabilities of the Company From Its Total Assets. The final step you will need to follow in order to arrive at a company's net worth calculation is to reduce its total assets by taking into account its total liabilities. For example, if you search the balance sheets of Yahoo! Finance to find the one for the Google Corporation, you will find that its total assets for March 2008 are just over 27 and a half billion dollars. Since its total liabilities are just over 3 billion dollars, its net worth ends up being approximately 24 billion dollars. Definitely make use of an online financial calculator during this last step, in order to verify the final information you'll take away from your study.
Tips and warnings
- Be aware of the difference between a company's Net Worth and its Tangible Net Worth. Net Worth is calculated by taking into consideration a company's LONG TERM assets & liabilities into consideration, while Tangible Net Worth is arrived at by examining only the CURRENT assets & liabilites of a company. The results of these two calculations can differ by hundreds, thousands or millions of dollars.
- While establishing a company's net worth may help you in being able to evaluate the company's history, you should also assess whether or not the company possesses growth potential. First of all, you should ask yourself if the company belongs to growth field -- for example, if you were to have evaluated a company that sold buggys and whips just before Henry Ford's model T revolutionised transportation in the early 20th century, you would have been tempted to invest everything you had in buggy and whip technology on the basis of this company's net worth. (Today, this same fallacy applies to our volatile technology market.) Secondly, you must decide whether the company you are evaluating offers a product which is unique from its competitors. If so, perhaps this company will have staying power.
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