Analysis of Asset Allocation

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Fundamental Analysis: Analyzing the balance sheet
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Introduction

The liabilities represent the source of funding of the company. We find there loans, the capital and reserves and the profits brought forward.

The assets represent the utilizations that the company has done with the liabilities. The structure depends of course of  the type of activity but we will find there the real estate, the machines, and the investments.

For analyze purposes, the balance sheet can be broken down in three major items:

  • Assets.
  • Liabilities.
  • Equity (that is part of the liabilities).

Assets and liabilities can be themselves broken down in two categories:

  • Short term items (usually defined as the ones that can be liquidated within the next twelve months).
  • Long term items.

By definition, Equity is considered as long term.

In the next pages, we will study Current assets and liabilities, Working capital, Debt equity ratio, and Book value.

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