Before we start looking at an actual balance sheet, let’s review:
A balance sheet is a snapshot of the financial position of an entity at a point in time.
Accountants view the financial position as having two components:
- Things that will generate benefits in the future - Assets.
- Things that will require sacrifices of resources in the future - Liabilities.
The difference between assets and liabilities at a point in time is called equity for an entity that has owners (partnerships, LLCs, corporations) and net assets for an entity that does not have owners (non-profits). We use the Fundamental Accounting Identity to structure the reporting of financial positions at points in time:
Assets - Liabilities = Equities
for a for-profit, and
Assets - Liabilities = Net Assets
for a not-for-profit.
Armed with this knowledge, let us look at the financial statements of CVS Health Corp. for the year ended December 31, 2019. A great place to find the financial statements of any publicly traded company in the United States is the Form 10-K that is filed annually with the SEC. We provide a .pdf of that document that you should refer to while watching the videos. (Note: This is a big document, and you do not need to print it all out. Instead, watch the first two videos below and, if you have two screens available, follow along in an electronic version of the 10-K. If you only have one screen, watch the videos and then look around in the 10-K. A downloadable PDF of each statement is provided before the video discussing that statement.)
This video helps you navigate the 10-K:
In this video, we examine a portion of the 10-K that helps us understand the businesses of CVS Health Corporation, the specific entity issuing these reports:
Now the financial statements.
We begin with the balance sheet. For your convenience, there is a PDF of the CVS Balance Sheet you should have in front of you when you watch the videos. I will also refer to Notes to the Financial Statements that you can find in the 10-K, excerpted in the second document below:
The first video introduces the balance sheet reported by CVS as of December 31, 2019:
Now let’s take a look at assets:
Next, we look at the liabilities:
Finally, here is a video about the equities:
Because CVS is a for-profit corporation, it has owners who invested money in the company. CVS also has amassed profits over the years and these profits are reflected in the net assets of CVS which have been retained in the business instead of distributed back to the owners. The Statement of Shareholders’ Equity helps sort out the amount of net assets that came from the direct investments of the owners and the retained amount that was generated through profits.
You will definitely want to open the following statement before watching the video.
Here is the video: