UC-NRLF

THE LIBRARY
OF
THE UNIVERSITY
OF CALIFORNIA
HENRY RAND HATFIELD
MEMORIAL COLLECTION
PRESENTED BY
FRIENDS IN THE ACCOUNTING
PROFESSION

W TO UNDERSTAND

A BALANCE SHEET

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-FT

HOW
TO UNDERSTAND

A BALANCE SHEET

CYRUS PEIRCE ^COMPANY

We make grateful acknowledgment

to

New

the

York Times Annalist

for much of the data from which

this book

is

compiled

******

HOW TO UNDERSTAND A BALANCE SHEET

M521575

It will

be apparent to the reader that the

method of analysis explained in this booklet

applies only to industrial companies.

Fourth Edition

Copyright 1921, Cyrus Pelrce

YCompmr

HOW TO UNDERSTAND A BALANCE SHEET

HE ability to read a balance
sheet and from

it

understand

the exact financial condition

of any company,

is

an impor-

tant aid to an investor.

<I

When an Investment Bank-

ing House is offered the bonds,

notes or securities of a cor-

poration,

important step

is

to examine

its

the

first

and most

balance sheet.

The Investment Banking House employs

the

most capable public accountants available to preand certify the corporations balance sheet,

pare
because an accurate balance sheet is an exact register

of the organization's financial health.

We have found, in explaining the merits of securities,

that

training

many

investors have not

which enables them

had special

to form an

independent judgment of a company's financial condition by

an inspection of the balance sheet.

Believing that a simple explanation of how to

read a balance sheet will be of value to many of our

we

herewith four actual

reproducing
balance sheets of well known companies which
clients,

are

will serve as

the discussion.
examples for

Cyrus Peirct

fc?

Company

It will

be observed that the amounts

listed

under

the column entitled "Desirable limits" are not the

same in the four examples nor are the comments

attached. In the first
it must be
place,
kept in mind
that the limits fixed for the four

examples depend
some extent upon the dates of the balance sheet,
for relations among the various factors have seasonal
to

Again, among any groups of factors, a

relation which might be desirable for one class of
variations.

industry

No

would be highly

hard and fast rule

unsuitable for another.

may

be

laid

down, and

in

experience must be the guide,

believed that even under such conditions,

individual instances

but

it is

the method here

will give any one a betpresented

ter understanding of the average balance sheet.

ANALYSIS KEY

EXAMPLE NUMBER ONE

LARGE AUTO ACCESSORY CO' BALANCE SHEET
OCTOBER 31, I92O

EXAMPLE NUMBER TWO

LARGE AND WELL' KNOWN REFRIGERATOR CO '
BALANCE SHEET AUG. 1, I92O
0,

EXAMPLE NUMBER THREE

OLD AND WELL-ESTABLISHED MAIL ORDER HOUSE
BALANCE SHEET DEC. J I, I92O

!ELOW is reproduced the balance sheet of

well-known tradtor company. Because
it reflects a
strong position in view of rea

cent trade conditions,

Number

Four.

it

will be

used

as

Example

On the opposite page we have

ana-

lysed this Balance Sheet, believing that the method

will be
and will aid the reader in making

apparent

an independent analysis of other balance

sheets.

ACTUAL BALANCE SHEET OF

WELL-KNOWN TRACTOR COMPANY

MARCH

AS OF

3 1,

I92I

ASSETS
Cash

in

Banks and

On Hand

Inventory

209,281.40
1,648,624.90

Notes and Accounts Receivable

237,398.16

$2,095,304.46

Patents

1.00

Land Buildings and Equipment

Less: Reserve for Depreciation

189,587.00

Refund of Overpayment to U. S.
Government 1 9 1 7 Federal Income Taxes

Claim

901,761.43
$

712,174.43

for

28,200.01

Deferred Charges

25,001.48

Total Assets

$2,860,681.38

LIABILITIES
Notes Payable
Accounts Payable

Debenture Serial Notes

Reserve for Workmen's Compensation

225,900.00
105,412.92

331,312.92

450,000.00
20,000.00

Capital Stock:
Preferred

Common

7%

Cumulative

Surplus, Subjeft to Provision for

Federal Income and Profit Taxes

Total

Liabilities

$1,250,000.00
500,000.00

$1,750,000.00

309,368.46

$2,059,368.46
$2,860,681.38

EXAMPLE NUMBER FOUR

BALANCE SHEET OF WELL'KNOWN TRACTOR COMPANY

MARCH

31,

I92I

The Symbol of
Cyrus ^eirce
Company

&

Cyrus Peirce

6?

Company

-^{INVESTMENT SECURITIES}*-

14

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M521575