This article “ Understanding company’s assets, liabilities and shareholders equity is meant to show investors and businessmen the core factors behind understanding a company’s cash flow statement, alongside understanding its balance sheet. The idea behind this is that it will help investors to make a well informed decision.

Now, what is a company’s asset?

A company’s asset, in this context, is basically what a company uses to operate its business.

In essence, an asset is the summation of liabilities and shareholders equity. i.e.

Asset- Liabilities + Shareholders Equity

This is one formula used in balance sheets calculation.

Company’s Assets

Now, we have two (2) types of assets, which are:

1) Current Assets

2) Non-Current Assets

Current Assets

Current assets are assets that can be converted easily into cash. Their life span is usually a year.

Current assets include accounts receivable, cash equivalents and inventory. The most significant of the current asset is cash. Cash equivalents are also ok because they could be easily converted into cash. An inventory in this context refers to work-in progress goods, finished goods and raw materials

Non Current Assets

What is a non- current asset?

A company’s non current assets refer to assets that could be turned into cash with no stress. They usually have more than a year life span.

However, two major types of non-current assets are:

a) Tangible assets: In this case, we have example such as building, machinery, land and computers.

b) Intangible Assets: Examples of intangible assets include copyright, goodwill e.t..c

2) A Company’s Liabilities

In this context, a company’s liabilities refer to all the financial commitments or obligations the company owes to parties outside. Two types of liabilities includes:

a) Current Liabilities

b) Long term Liabilities

Current Liabilities

What is a company’s current liability? A company’s current liability refers to those liabilities which must be paid within one year. Under this, we have Short term borrowings and longer term borrowings. The short term borrowings include account payables e.t.c. Example of the long term borrowing are interest payment e.g 12 years loan e.t.c.

Long Term Liabilities

They are basically debts with other non debt financial obligations, which becomes due after a period of a minimum of one year from the recorded date on the balance sheet.

3) A Company’s Shareholders Equity

What is a shareholder’s equity?

Shareholders equity is basically the amount of money (fund) invested in a business. What is a shareholders account, you may ask? A shareholders equity account is a company’s total net worth.

……to be continued in part 2.