- 1). Determine company assets. These are all things the company deems valuable and include both current and non-current assets. Current assets (short-term) are assets that are convertible into cash within one year; and, non-current assets (long-term) are assets of a more permanent nature. Assets are usually the first section on the balance sheet. For example, let's say that current assets are $3,000 and non-current assets are $7,000. Therefore, $3,000 + $7,000 = $10,000, so the company's assets are $10,000.
- 2). Determine stockholders' equity. Equity is calculated by summing the shareholders' investment and retained earnings from net income. Both can be found on the balance sheet. Retained earnings are earnings that are not distributed to shareholders. If a company does not show stockholders' equity, use retained earnings. As an example, let's say the shareholders' investment is $1,500, and retained earnings are $500. Thus, $1,500 + $500 = $2,000, so stockholders' equity is $2,000.
- 3). Calculate total liabilities. Liabilities are calculated by subtracting equity from assets. The calculation is $10,000 - $2,000 = $8,000. This means that $8,000 of assets are paid for with liabilities or debts to the company.
- Advertisement -
- Advertisement -