A balance sheet summarizes a company’s financial status as of a specific date. It reports a company’s assets (what the business owns), its liabilities (payment obligations to others) and its owners’ equity. The balance sheet equation is Assets = Liabilities + Owners’ Equity.
The balance sheet is the cornerstone of corporate finance. Understanding this document helps you understand the rest of the accounting and finance topics. It is based on past performance and provides insights into the financial health of the company.
In the top section of a typical balance sheet, assets are broken down into categories based on their convertibility to cash. The most liquid assets are typically grouped together under the category of “cash and cash equivalents,” which includes short-term investments, marketable securities and current accounts receivable. Other assets are categorized as either noncurrent or fixed assets, including office equipment, land and long-term investment assets such as stocks and bonds. The bottom section of the balance sheet reports total liabilities and total shareholders’ equity. The section for total liabilities reports payment obligations owed to creditors, while the section for total shareholders’ equity reports common stock value and retained earnings.
The balance sheet is a key piece of information for all stakeholders, from creditors to investors and shareholders. In addition to providing a snapshot of a company’s financial condition, the information can help a company manage its debt and investment portfolios, as well as predict future revenues and expenses. Bilanz