Can you

analyze Apple’s or Tesla’s balance sheet?

 Can you analyze Apple’s or Tesla’s balance sheet? What if I gave you the balance sheet, and the notes to the financial statements of a company like Apple or Tesla, and asked you to come up with three to five major insights over the course of the next hour? Finance and accounting professionals tend to be well familiar with the concept of what a balance sheet is. But what if you need to dive into very specific areas of the balance sheet: goodwill and intangible assets, deferred tax assets and liabilities, deferred revenue, retained earnings, or treasury stock, to name but a few. You may have heard of these terms and have a vague recollection of where and how they fit in, but it is very unlikely that you are using them on a frequent basis. Yet they could be material items on a company’s balance sheet, or the cause of huge swings in profitability in the income statement when a write-off occurs. And when you do the analysis, how do you even decide whether you came up with a) a major insight, or b) something that is good to know but not really a breakthrough, or c) merely a piece of balance sheet trivia that might soon be forgotten?.

Understanding Apple's balance sheet 

For example, if you do decide to review Apple’s latest balance sheet, understanding how retained earnings and deferred revenue work is instrumental. How can a company that has been so immensely profitable for so many years have an accumulated deficit, in other words negative retained earnings? Apple’s Shareholders’ equity on the balance sheet has eroded from $134B at year-end FY17 (of which $98B retained earnings) to $50.7B at year-end FY22 (of which ($3B) retained earnings), as the company year after year after year has stock purchases plus dividends exceed net income. Apple’s working capital is very well managed, with the accounts payable balance on the right-hand side of the balance sheet nicely covering the accounts receivable and inventory positions on the left-hand side, but it is deferred revenue that pushes total working capital into negative territory (which is a very positive thing in terms of cash flow and the company’s financing structure!).

Understanding Tesla's Balance Sheet

When studying Tesla’s balance sheet, you will come across the accumulated depreciation contra account in its huge property, plant and equipment (PP&E) section. Six categories of PP&E total $32.6B of investment. Only $9B has been depreciated so far, as much of Tesla’s facilities are brand new, but this contra account will grow in size rapidly over the next few years. In addition, you will find that accrued liabilities are growing due to the rapid expansion of the company, whereas the goodwill and intangible assets balances are relatively small. Contrary to Apple’s shrinking retained earnings which are driving the equity balance down, those of Tesla are growing. No dividends were paid, and no share buybacks occurred, so all of the net income was added to retained earnings in the equity section of the balance sheet.

A Comprehensive Review of Essential Financial Terms

If you need a refresher on any of these balance sheet terms, then I can recommend the “Balance Sheet Tour” course on illumeo, where we review several “less travelled,” yet very important, balance sheet categories. The type of terms that you have heard about but might not quite know (or remember) how they work. This series of videos goes above and beyond what textbooks would provide you, by addressing concept, definition, and journal entries, as well as practical use. Many of the videos feature multiple real-life examples of well-known companies, illustrating the terms, and relate the financial terms to a company’s business model and “financial footprint”. A great way to grow your ability to review a balance sheet, and to build your confidence to summarize your major insights.

Additionally, as you grow your finance career, it becomes more and more important to communicate clearly to a broad range of stakeholders. Explaining the financial results, and the potential risks of the business, in a simple and straightforward way, that still does justice to the level of complexity of the situation. Sharing your knowledge and building your brand as an expert. If you can impress by showing that you are familiar with how famous world-class companies handle their core financial decisions, all the better! What if you need to explain balance sheet related terms like prepaid expenses, asset impairments, or CapEx vs OpEx to novices, or those that have a slight aversion to financial statements? A very “technical” explanation of finance and accounting terms often does not work for most of the stakeholders. The Balance Sheet Tour course provides you with tried and tested examples to help you build their basic financial acumen, bridging the gap:


  • Prepaid expenses on the balance sheet are best explained using examples of insurance paid upfront for a full year, annual subscriptions, and prepaid travel.
  • Asset impairments can “come alive” by focusing on the popular use of the word impaired first. There are warning labels on certain medications stating that the medications might negatively affect, or impair, you’re driving. There are warning labels in high noise areas mandating the use of hearing protection. Once your driving skills or hearing ability are impaired, it means that they are weakened, diminished, or damaged. That same concept could apply to assets in a company: accounts receivable, inventory, fixed assets, goodwill, even cash can be impaired.
  • The distinction between Capital Expenditures (CapEx) and Operating Expenditures (OpEx) is best described through examples that relate to the business environment that stakeholders are familiar with. If you are in the real estate business, a new roof for the building is very likely to qualify as CapEx spending, while window cleaning is OpEx. If you run a lab, buying new test equipment is CapEx, and the maintenance of that equipment is OpEx. If you are in IT, buying servers for your own datacenter is CapEx, using an external cloud service for a monthly fee is OpEx.

After taking the Balance Sheet Tour, terms like CapEx, goodwill, intangibles, accruals, prepaids and deferrals will make (more) sense to you! As participants in the course will tell you: “a simple and effective overview of things you don’t deal with every day, super easy to understand…. informative and relevant.