A company’s balance sheet will tell you all about a company’s assets, liabilities and shareholder equity. Assets have to equal the sum of a company’s liabilities and equity.
First up, we have assets. These are all the things that a company owns in order to operate its business that have value—physical property like plants, trucks, equipment and inventory, as well as intangible assets like goodwill, trademarks and patents.
On the other side of the balance sheet are liabilities—financial obligations that the company owes. This can be money borrowed from a bank, rent for a building, money owed to suppliers, payroll for employees or taxes owed to the government.
Finally, shareholder’s equity—sometimes called capital or net worth—is money that would be left if a company sold all of its assets and paid off all of its liabilities. If, at the end of the year, a company reinvests its net earnings into the company, the earnings will be transferred onto the balance sheet into the shareholder’s equity account. Other times, a company may choose to distribute earnings through dividends instead of retaining them.
And I have to say, although I will never recommend stocks solely based on dividends, the yield of a company is indeed a factor I look at.