The balance sheet still offers the best picture of a company’s financial position —as of the date of the balance sheet. If the balance sheet of Enron, had been heeded, then its favorable earnings reports issued immediately prior to its bankruptcy might have been viewed with a bit more skepticism. The balance sheet does—or should—tell the analyst a great many things. It also poses a great many questions. And it behooves the corporation to anticipate these questions in order to prevent misunderstanding or misinterpretations, as well as to clarify the position of the company. There may very well be justification for a very high inventory or a substantial increase in inventory from one year to the next. For example, a major customer under a multi-year contract may have deferred deliveries from the fourth quarter to the first quarter of the following year. The balance sheet alone will merely indicate the size of the inventory. It will not explain it. A reduction of cash from the prior year against a reduction of debt implies that the cash was used to reduce the debt. Without explanation it is merely an implication. Certainly a disparity from one year to the next in accounts receivable or accounts payable warrants an explanation, even if it’s an unfavorable one. The growth of pension fund assets poses an increasing balance sheet problem particularly under current accounting treatment, because the unfunded pension liability portion can be larger than it should be—a great worry to investors.

While the notes to financial statements usually clarify the debt structure, questions about debt—both long and short term—go beyond the balance sheet. The balance sheet, it must be remembered, is as of a particular date. Debt can be increased or decreased the day after the closing of a balance sheet, as can any element of the assets or liabilities. This is a prime example of why a balance sheet never speaks for itself in describing a company; the analyst wants to know more that it can show. And with accounting standards rapidly changing, the company must be prepared to defend its accounting methods.

The real time aspects of the internet may help by allowing for a running balance sheet, with changes reported as they occur. But for comparison, the dates must be consistent.