From the course: Finance and Accounting Tips

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Limitations of the balance sheet

Limitations of the balance sheet

From the course: Finance and Accounting Tips

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Limitations of the balance sheet

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- Okay, let's discuss some of the balance sheet's limitations. For example, let's look at Apple's net assets, that is, its assets less its liabilities. They were just over 128 billion as of September 24, 2016. Apple's market value on that day was about 607 billion. - Okay, so why the difference? Many individuals think that a balance sheet should reflect the company's market value. Well, it doesn't and it isn't supposed to. Knowing that fact right from the start puts you ahead of a lot of people who do not know their way around a balance sheet. - External users often need to know a company's worth. A balance sheet, however, does not generally reflect the current value of a business. - A favorite ratio among followers of the stock market is the book-to-market ratio. Computed as the total book value of equity from the balance sheet divided by the total market value of common equity. Remember that equity is equal to the company's assets less the company's liabilities. For Apple, the…

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