This webinar provides an overview of how to read and analyze a balance sheet. It defines key components of a balance sheet including assets, liabilities, and equity. Assets are broken into current, non-current, and other categories. Liabilities are also broken into current and long-term categories. The webinar explains how a balance sheet provides a snapshot of a company's financial condition at a point in time. It also discusses various methods for analyzing a balance sheet, including vertical analysis, horizontal analysis, and financial ratios. The faculty are then introduced, who are experts in business valuation, restructuring, and financial analysis.

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Practical and entertaining education for
attorneys, accountants, business owners and
executives, and investors.

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5. Disclaimer
The material in this webinar is for informational purposes only. It should not be considered
legal, financial or other professional advice. You should consult with an attorney or other
appropriate professional to determine what may be best for your individual needs. While
Financial Poise™ takes reasonable steps to ensure that information it publishes is accurate,
Financial Poise™ makes no guaranty in this regard.
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6. Meet the Faculty
MODERATOR:
Chris Cahill - L&G Law Group LLP
PANELISTS:
John Levitske - Ankura
Lee Gould - Gould & Pakter Associates, LLC
Michael Schwarzmann - Independent CRO and Restructuring Advisor
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7. About This Webinar
How to Read a Balance Sheet – And Why You Care!
A balance sheet provides a snapshot of a company’s assets, liabilities, and equity. It
is one of several major financial statements used to manage a business, and is a
critical due diligence item used by lenders and investors in deciding whether to
provide capital to a business. This webinar explains the basics of understanding a
balance sheet and puts it in context by also touching on the other key financial
statements.
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8. About This Series
MBA Boot Camp 2020
“If you don’t know your numbers, you don’t know your business.” This is a common refrain
that is equally applicable to attorney and other consultants who work with businesses. This
webinar series is designed for you if you are a startup founder, business owner, executive,
investor, attorney, or consultant who, though not a finance or accounting professional, finds
herself needing to understand finance and accounting. It won’t make you an expert but it will
give you the tools you need to speak with experts in order to get more out of them and it will
provide a solid foundation on which you can build. Packed with illustrative examples, helpful
anecdotes and real-world case studies, this series teaches you some of the key take things you
need to understand about finance and accounting.
Each Financial Poise Webinar is delivered in Plain English, understandable to investors, business owners, and
executives without much background in these areas, yet is of primary value to attorneys, accountants, and other
seasoned professionals. Each episode brings you into engaging, sometimes humorous, conversations designed to
entertain as it teaches. Each episode in the series is designed to be viewed independently of the other episodes so that
participants will enhance their knowledge of this area whether they attend one, some, or all episodes.
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9. Episodes in this Series
#1: EBITDA and Other Scary Words
Premiere date: 1/23/20
#2: How to Read a Balance Sheet – And Why You Care!
Premiere date: 2/20/20
#3: The KPI- Cash Flow Modeling and Projections
Premiere date: 3/19/20
#4: Where Did All My Profits Go? Mastering the Concept of Working Capital
Premiere date: 4/16/20
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10. Episode #2
How to Read a Balance Sheet – And Why You Care!
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11. Introduction to the Balance Sheet
"[W]hy is the forgotten financial statement . . . so important for startups? Because they are not
generating profits and free cash flow in their early days. They’re burning through cash and
accumulating losses (negative shareholder equity) in their early days as they seek Product
Market Fit, increasing sales, and cash-flow breakeven. Even if gross margins are high, it is
the very rare startup which generates enough gross margin dollars to cover the entire
startup’s operating expenses.”
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12. Introduction to the Balance Sheet
A Company's balance sheet:
• tells management and investors how much in assets a company has, how much it is
owed, how much it owes (debts), and its resulting net worth (shareholder equity)
• presents a snapshot of the Company’s financial conditions at a specific time
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13. What Can a Balance Sheet Tell an Educated Reader?
• Amount of debt relative to equity
• With the income statement, how quickly customers are paying bills and the company
is paying its bills
• Increases or decreases in short term cash
• % of assets that are tangible vs. % intangible based on accounting transactions
• With the income statement, average rates of interest paid on Company's debts
• Liquidity and nature of assets
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14. What a Balance Sheet Doesn’t Tell You
“Off-balance” Liabilities:
 Operating Leases
 Leaseback agreements
 Collateralized debt obligations
 A/R
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15. How is the Balance Sheet Different From Other
Financial Statements?
[Balance Sheet is a snapshot of Company’s financial condition at specific time]
Balance Sheet vs. Income Statement:
• Income statement measures record of company’s revenues matched with costs to
net loss or profitability
Balance Sheet vs. Cash Flow Statement
• Cash flow statement measures actual changes in cash compared to the income
statement, shows where cash is coming in and going out
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16. Basic Components of the Balance Sheet
• Assets
• Liabilities
• Equity
The Balance sheet must Balance – these three categories must “net out,” to zero
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17. Assets
• Generally recorded at cost (or lower), not Fair Market Value
• Broken out on the Balance Sheet between various classes of assets, including
 Current Assets
 Noncurrent Assets
 Other Assets
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18. Assets
• Current Assets
 Assets that are likely to result in cash inflows or benefit with a lifespan of 1 year
or less
 Includes:
o Cash/cash equivalents
o Accounts receivable
o Inventory
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19. Assets
• Noncurrent Assets
 Long term investments where value will be realized over more than one year
 Includes:
o Tangible assets (machinery, buildings, real estate, office equipment)
o Intangible assets (goodwill, patents, copyrights)
 Depreciation or Amortization is calculated and deducted from most of these
assets to reflect in the income statement used up value during an operating
period
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20. Assets
• Other Assets
 Assets that do not fit within either class of assets above, but must be
accounted for on the Balance Sheet
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21. Liabilities
• Debts or other financial obligations owed by the Company to others
• Broken out on the Balance sheet between various classes of liabilities, including:
 Current Liabilities
 Noncurrent (i.e., long term) Liabilities
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22. Liabilities
• Current Liabilities
 Debts or non-debt financial obligations that must be paid or will come due
within a year of the date of the Balance Sheet
 Includes:
o Accounts payable
o Wages
o Interest
o Warranty liability
o Unearned revenues
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23. Liabilities
• Noncurrent/Long Term Liabilities
 Debts or non-debt financial obligations due after a period of at least a year
from the date of the Balance Sheet
 Includes:
o Notes payable
o Bonds payable
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24. Equity
• May be referred to as “Owner’s Equity,” “Shareholders’ Equity,” “Net Worth,” etc.
• The resulting balance of shareholders’ investments after accounting for assets and
liabilities
• Also characterized as the initial amount of money invested into a company
• Retained earnings: net earnings reinvested into the Company at the end of its fiscal
year, rather than making shareholder distributions
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25. Equity
• Each class of equity should be accounted for on the Balance Sheet (common
shares, preferred shares, retained earnings, etc.)
• Balance Sheet’s calculation of equity is considered “Book Value”
 Book value may be informative in some cases, and meaningless in others
 Will differ based on industry, business models, and other factors
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26. Source: https://www.accountingcoach.com/wp-content/uploads/2013/10/05X-table-03@2x.png
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Sample
Balance
Sheet

27. Analyzing Balance Sheets: Vertical Analyses
• Proportional analysis of financial statement
• Each line item listed as a % of another item
• Usually means every line item stated as % of total assets
• Commonly used for specific time period, to see relative proportions, and to note
changes in company’s investment in working capital and fixed assets over time
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28. Analyzing Balance Sheets: Horizontal Analyses
• Comparison of historical financial information over series of reporting periods
• Intended to show whether any numbers are unusually high or low in comparison to
information for bracketing periods
• Flagged items may trigger investigation to identify reason for differences
• Commonly done by grouping information sorted by period
• Usually performed in 2-year format, with variance showing difference between the 2
years for each line item
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29. Analyzing Balance Sheets: Ratio Analyses
• Financial ratio analyses can be applied to a Balance Sheet (often in connection with
other financial statements) to understand a company’s overall health
• Example #1: Quick Ratio
 Quick Ratio = (Current Assets – Inventory) / Current Liabilities
 Measures company’s ability to meet short-term obligations with liquid assets
 Higher = Better
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30. Analyzing Balance Sheets: Ratio Analyses
• Example #2- Current Ratio
 Current Ratio = Current Assets / Current Liabilities
 Simple method for determining company’s ability to repay short term liabilities
 A ratio below is a red flag (indicates struggles to pay short term liabilities)
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31. Analyzing Balance Sheets: Ratio Analyses
• Debt to Equity Ratios
 Used to determine how company is financing growth
 Higher ratio indicates growth through debt
 Numerous means of calculating
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32. Analyzing Balance Sheets: Ratio Analyses
Additional Examples of ratios
used to analyze balance sheets
Source: https://www.oldschoolvalue.com/blog/valuation-methods/balance-sheet-ratios/
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33. About the Faculty
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34. About The Faculty
Chris Cahill - ccahill@lgcounsel.com
Mr. Cahill is Head of the Bankruptcy and Restructuring Practice Group at L&G Law Group
LLP, in Chicago, Illinois. He guides secured lenders, creditors, debtors, creditors’
committees, potential purchasers and others through bankruptcy cases, out-of-court
workouts, assignments for the benefit of creditors, and receiverships. Mr. Cahill has
substantial mega-case experience representing very large debtors, and counsels and litigates
on behalf of manufacturers and secured lenders in large and middle-market cases.
Mr. Cahill also publishes frequently and speaks regularly on commercial insolvency
issues. He is an executive editor of Commercial Bankruptcy Litigation, 2d Edition (Jonathan
P. Friedland, Elizabeth Vandesteeg & Christopher M. Cahill eds., 2020).
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35. About The Faculty
John Levitske - John.Levitske@ankura.com
John Levitske is a Senior Managing Director at Ankura, focused on business valuation and complex financial
disputes. He has served as a senior advisor to companies, owners, executives, and legal counsel in business
disputes, shareholder disputes, and M&A transactions regarding issues of valuation, finance, damages, and
accounting. John is based in Chicago. With more than two decades of Big Four public accounting and
international consulting experience, John is seasoned in business valuation, financial analysis, economic
damage quantification, forensic accounting, retrospective solvency analysis, and post-merger & acquisition
accounting calculations. He handles appraisals of healthy and distressed companies for buyouts of shareholders
and creditors, transaction planning, estate and gift taxation, financial accounting, bankruptcy proceedings, and
litigation disputes. John has provided consulting and expert witness testimony services and has served as a
neutral party in arbitration and mediation. He has testified as an expert witness in the US and Europe in
depositions, hearings, bench and jury court trials, and domestic and international arbitration (ICC, SCC, AAA,
JAMS, FINRA, and ad hoc arbitrations) and has served as a neutral arbitrator. In addition, he has rendered
binding decisions on disputed matters.
To read more, go to https://www.financialpoise.com/financialpoisewebinars/faculty/john-levitske/.
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36. About The Faculty
Lee Gould - lgould@litcpa.com
Mr. Gould focuses on performing valuations of closely held businesses, lost profit and economic damages
determination and forensic and financial accounting analysis. He has almost forty years of experience in diverse
engagements in numerous industries. Mr. Gould has testified in Federal and State courts and participated in
alternative dispute resolutions. He has been recognized as an expert in business valuations, economic damages
determination, financial analysis, tracing assets and sources of funds used to purchase assets, revenue and expense
analyses and business economics. Mr. Gould provides business valuations, business consulting services and
testimony for trial lawyers and their clients. He has experience in business valuations for family law proceedings,
shareholder dissent and oppression matters, estate and gift tax compliance purposes and in conjunction with the
preparation of buy/sell agreements. He provides business valuations and related consulting services for middle-
market, closely held businesses including, when appropriate, allocation of personal and enterprise goodwill.
Mr. Gould performs lost profit and financial damages calculations in commercial litigation matters including breach of
contract, lost profits and business interruption claims. He has provided litigation consulting services in a variety of
industries including manufacturing, distribution, retail, construction, financial services, professional service
corporations and real estate.
To read more, go to https://www.financialpoise.com/financialpoisewebinars/faculty/lee-a-gould.
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37. About The Faculty
Michael Schwarzmann – michaelschwarzmann@yahoo.com
Michael Schwarzmann has over 20 years’ experience helping identify opportunities to create value for his clients.
I have extensive experience working with established companies when they encounter financial difficulties by
assisting them in developing solutions to address short term cash needs and longer term profitability. My
process includes helping to identify cost savings and value capture scenarios by analyzing historical financial
performance along with current operations and projecting optimizing strategies. Utilizing weekly and monthly
cash flow statements, budgets, and forecasts, I utilize a focused, data driven approach to identifying
opportunities to increase company profitability. Through a broad review of financial, operational and strategic
performance, I help guide companies to increased profitability. Working across the organization, vertically and
horizontally, uncovers additional solutions and generates greater buy-in of the goals, objectives and action plan,
all of which are critical to maximize the impact of proposed changes. I utilize my legal knowledge to seamlessly
work with counsel to identify and address legal issues in a more cost effective manner.
I have guided the development and evaluation of business plans and formulated successful strategies to
preserve or improve asset values. I am a consensus builder. Industry experience includes: health care,
manufacturing, agricultural, construction, restaurants and franchising, energy and travel.
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38. Questions or Comments?
If you have any questions about this webinar that you did not get to ask during the live
premiere, or if you are watching this webinar On Demand, please do not hesitate to email us
at info@financialpoise.com with any questions or comments you may have. Please include
the name of the webinar in your email and we will do our best to provide a timely response.
IMPORTANT NOTE: The material in this presentation is for general educational purposes
only. It has been prepared primarily for attorneys and accountants for use in the pursuit of
their continuing legal education and continuing professional education.
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39. About Financial Poise
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