Analyze the company’s total assets
Locate the assets of a company, which will usually be categorized as current, and non-current. The former will refer to those which can be easily converted into cash, and will have a span of usually 12 months or an accounting cycle. This will include cash, cash equivalents, inventory and account receivables. The latter will have a larger span, of more than one year, and will include tangible assets in equipment, building and land, as well as intangible assets in goodwill, patents or copyrights.
Analyze the company’s total liabilities
The right-hand-side will firstly incorporate the financial obligations of a company. It will include both short and long-term liabilities, ones which need to be settled within a year such as accounts payable, while others which will have longer durations.
Retained earnings will be calculated by subtracting Step 2 (Total Liabilities) from Step 1 (Total Assets). This will usually be referred to as the owners’ wealth. However, in order to conclude the exact amount, one needs to subtract the money given to shareholders as dividends – preferred and common stocks.