We have covered plenty of theory about the balance sheet; now let's go to the real world and test what we have learned. Publicly traded companies (those whose shares trade on the stock exchange) must disclose their financial statements to the CVM (Comissão de Valores Mobiliários, Brazil's securities regulator) and to B3, and they face administrative and legal action if they disclose false information. In addition, these statements must be examined by independent auditors registered with the CVM (Law 6,404/76, art. 177, § 3), who issue an opinion on them.The better a company's governance, the easier it is to attract investment. And a good investor should study the companies where they plan to put their money. A good starting point is the website of the Brazilian stock exchange: the B3 website.The items of the Balance SheetBefore opening a real balance sheet, it is worth having a map of all the groups it can contain. The structure comes from article 178 of Brazilian Corporate Law (Law 6,404/76), as amended by Laws 11,638/07 and 11,941/09. These laws abolished the old "Permanent Assets" group (its items are now in Non-current Assets), "Deferred Assets" and the "Deferred Income" group. If a textbook still uses these names, it is out of date.GroupSubgroupExamples of accountsCurrent Assets—Cash and cash equivalents, short-term investments, trade receivables, inventories, recoverable taxes, prepaid expensesNon-current AssetsLong-term receivablesReceivables due after the next fiscal year, judicial deposits, deferred taxes, loans to affiliates, subsidiaries, partners and directorsInvestmentsInterests in other companies, investment propertyProperty, plant and equipmentLand, buildings, machinery, vehicles, construction in progress (less accumulated depreciation)Intangible assetsBrands, software, licenses, mining rights, goodwillCurrent Liabilities—Suppliers, salaries and payroll charges, taxes payable, loans and financing due within 12 months, dividends payableNon-current Liabilities—Long-term loans, financing and debentures, provisions (lawsuits, asset decommissioning), deferred taxesEquity—Share capital, capital reserves, equity valuation adjustments, profit reserves, treasury shares (contra account), accumulated lossesThe rule that separates current from non-current is time: whatever is realized or falls due by the end of the following fiscal year (usually 12 months after the balance sheet date) is current; the rest is non-current. Companies whose operating cycle is longer than one year, such as construction companies and shipyards, use the operating cycle as the reference.A company has a R$ 500 thousand loan, of which R$ 100 thousand falls due within 12 months of the balance sheet date. How does it appear on the balance sheet?Answer: R$ 100 thousand in Current Liabilities and R$ 400 thousand in Non-current Liabilities — the criterion is when each installment falls due, not the original term of the contract.A company bought a plot of land to rent out to third parties, not to use in its operations. Which subgroup does it belong to?Answer: Investments — property held to earn rent is investment property (CPC 28, the Brazilian equivalent of IAS 40). It would be property, plant and equipment if it were used in the company's own operations.How to find information on the B3 websiteA warning first: the B3 website changes its layout fairly often and is sometimes down (B3 itself is relatively new, created in 2017 from the merger of BM&FBovespa and Cetip). So the paths below may change; the search logic will not. The same information is also available on the CVM website.Go to the "Empresas Listadas" (Listed Companies) tab:Type in the company's name. We will use Vale as an example (formerly Companhia Vale do Rio Doce, which adopted the name Vale in 2007). Only one result should appear:Click on Vale. The company's page shows various information, including a summary of its financial statements. The figures below were copied from that summary and are in thousands of reais (R$ thousand):Balance Sheet - Consolidated12/31/202212/31/2021Property, Plant and Equipment, Investments and Intangible Assets297,274,000294,053,000Total Assets453,387,000499,128,000Equity194,894,000197,058,000Equity Attributable to the Parent Company187,112,000192,403,000Income Statement - Consolidated01/01/2022 to 12/31/202201/01/2021 to 12/31/2021Sales Revenue226,508,000293,524,000Gross Profit102,313,000176,257,000Equity Method Result1,616,000(6,947,000)Financial Result11,378,00017,812,000Net Income from Continuing Operations86,519,000133,827,000Profit (Loss) for the Period96,337,000121,343,000Profit (Loss) for the Period Attributable to the Parent Company95,924,000121,228,000Cash Flow Statement - Consolidated01/01/2022 to 12/31/202201/01/2021 to 12/31/2021Operating Activities58,201,000136,766,000Investing Activities(24,176,000)(35,288,000)Financing Activities(71,005,000)(109,226,000)Exchange Rate Effect on Cash and Cash Equivalents(3,718,000)3,071,000Increase (Decrease) in Cash and Cash Equivalents(40,698,000)(4,677,000)We can already draw some conclusions. Long-term assets (property, plant and equipment, investments and intangibles) made up 66% of total assets in 2022 (297,274 ÷ 453,387), which is typical of a mining company. Equity funded 43% of assets (194,894 ÷ 453,387), and the rest came from third parties. Revenue fell 22.8% from 2021 to 2022, and net profit fell 20.6%. In the cash flow statement, the three activities plus the exchange rate effect add up exactly to the decrease in cash: 58,201 − 24,176 − 71,005 − 3,718 = −40,698 million reais.To see the full statements, click "Sobre a empresa" (About the company) at the top.Choose "Relatórios Estruturados" (Structured Reports). If you want to go straight there, click here.Choose the year and click on the report you want. For example, I chose 2022 and opened the first report (the DFP, Demonstrações Financeiras Padronizadas, is the annual filing; the ITR, Informações Trimestrais, is the quarterly one).On 12/31/2022, Vale had equity of R$ 194,894 million and total assets of R$ 453,387 million. What share of its assets was funded by third parties?Answer: 57% — third-party capital is assets minus equity: 258,493 ÷ 453,387 = 57%. The 43% is the share funded by equity.Going straight to the investor relations websiteAnother way to get information is to go straight to the company's investor relations (IR) website. Vale, for example, publishes its information at Vale.com/investors. There you will find reports that are more complete than the B3 summaries, such as earnings presentations and production reports.We can see Vale's report for the 4th quarter of 2022 through this link here.Let's take a look at Vale's assets and liabilities. The tables below come from the company's earnings report and are in millions of US dollars (US$ million), not reais, comparing 12/31/2022, 09/30/2022 and 12/31/2021; the totals match the B3 summary converted at each date's exchange rate. Note that Vale shows 'Fixed assets' (property, plant and equipment, intangibles and investments, US$ 56,974 million in 2022) on a separate line, but under Brazilian Corporate Law (Law 6,404/76) they are part of non-current assets. See how each line fits into one of the groups in the table at the beginning:AssetsCurrent liabilitiesNon-current liabilities and equityExercisesChoose a listed company and download its balance sheet. Classify each account into one of the groups in the table at the beginning, calculate a few ratios (current ratio, debt, net margin) and draw a conclusion: is the company in good financial shape? Would you invest in it?
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