The Accounting Equation And How It Helps In Your Fundamental Analysis

Those who had studied accounting or have had an accounting subject back in school would have encountered the accounting equation, which is:

<p class="MsoNormal">&nbsp;</p> <p class="MsoNormal">Assets = Liabilities + (Owners&rsquo; / Shareholders&rsquo;) Equity</p>    <p class="MsoNormal">&nbsp;</p> <p class="MsoNormal">Or:</p>    <p class="MsoNormal">&nbsp;</p> <p class="MsoNormal">A = L + E</p>    <p class="MsoNormal">&nbsp;</p> <p class="MsoNormal">For the uninitiated, the accounting equation shows that a company&rsquo;s assets are made up of debt (liabilities) and shares issued to shareholders (equity). The equation forms the basis of the double entry accounting system which is universally used by accountants worldwide.</p>    <p class="MsoNormal">&nbsp;</p> <p class="MsoNormal">The practical application of this equation is shown in a balance sheet, which is one of the three financial statements reported by companies. Here is an example of the A = L + E in real life:</p> <p class="MsoNormal"><br /></p>   <p class="MsoNormal"></p> <a href="https://1.bp.blogspot.com/-hETlodHMR0I/X0qPhHnyAcI/AAAAAAAAARs/bGVXYAqHKZY9KvS86TPCYZ8nXnMPkVAlACLcBGAsYHQ/s596/Accounting%2BEquation.png"></a> <br /> Fig.1: Balance Sheet (excerpted from Singtel 2019 Annual Report,