Financial modelling terms explained

Balance Sheet

A balance sheet is a financial statement that reports a company's assets, liabilities, and owner's equity at a specific point in time – usually at the end of an accounting period.

What is A Balance Sheet?

A balance sheet is a snapshot of a company's financial position at a particular point in time. It shows the company's assets (what it owns), its liabilities (what it owes), and the difference between the two (its equity). This difference is called the shareholders' equity, and it reflects the amount of money that would be left over if the company were to sell all its assets and pay off all its liabilities.

How Do You Make One?

There are a few different ways to make a financial model. One way is to use a software program, such as Microsoft Excel. Another way is to use a programming language, such as C++ or Python. Finally, you can also use a spreadsheet program, such as Google Sheets.

What Are Assets?

An asset is anything of value that is owned by a company. Assets can be tangible (such as cash, equipment, or inventory) or intangible (such as trademarks, copyrights, or patents). The purpose of a financial model is to estimate the value of a company's assets. This can be done by calculating the present value of future cash flows, using a discount rate that reflects the company's risk.

What Are Liabilities?

Liabilities are obligations of a company that arise from past transactions or events. A company's liabilities may include accounts payable, wages payable, taxes payable, and long-term debt. In financial modelling, it is important to understand a company's liabilities in order to forecast its future cash flow and financial position.

What Is Equity?

Equity is a term used in finance to describe the value of a company's ownership stake in itself. It is calculated by subtracting the company's total liabilities from its total assets. Equity represents the residual value of a company's assets after liabilities are paid. It is a key component of a company's balance sheet and is used to measure a company's financial health.

What Is Debt?

Debt is an agreement between two parties in which one party, the lender, provides money to the other party, the borrower, in exchange for interest payments. The borrower agrees to pay back the principal amount of the loan plus interest over a set period of time. Debt can be used for a variety of purposes, such as buying a home or car, starting a business, or investing in a financial asset.

How Do You Calculate Total Assets?

The calculation of total assets is a fundamental step in any financial modeling exercise. Total assets are composed of two primary elements: current assets and fixed assets. Current assets are those that can be converted to cash within a short period of time, typically a year or less. These include cash and cash equivalents, short-term investments, and accounts receivable. Fixed assets are those that are not expected to be converted to cash within a short period of time. These include long-term investments, property and equipment, and intangible assets. To calculate total assets, simply add the current assets and fixed assets together.

How Do You Calculate Total Liabilities and Equity?

There are a few different ways to calculate total liabilities and equity, but the most common way is to simply add up all of the company's liabilities and then subtract total equity. liabilities can be found on the balance sheet, while equity is found on the shareholders' equity section of the balance sheet. To calculate total liabilities and equity, you would simply add up all of the company's liabilities, including short-term and long-term liabilities, and then subtract total equity. This will give you an accurate picture of the company's total liabilities and equity.

What Is the Difference Between Net Worth and Total Assets?

Net worth is the difference between an individual's total assets and total liabilities. Total assets are the sum of all an individual's assets, while total liabilities are the sum of all an individual's liabilities. An individual's assets can be divided into three categories: liquid, illiquid, and fixed. Liquid assets are those that can be converted into cash quickly, such as cash and checking accounts. Illiquid assets are those that cannot be converted into cash quickly, such as real estate and stocks. Fixed assets are those that cannot be converted into cash quickly or at all, such as a car or a home. Total liabilities are also divided into three categories: short-term, long-term, and contingent. Short-term liabilities are those that are due within a year, such as a credit card balance. Long-term liabilities are those that are due after a year, such as a mortgage. Contingent liabilities are liabilities that may or may not become due in the future, such as a lawsuit.

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