A balance sheet is one of the three main financial statements that gives a summary of an organization’s assets, liabilities, and equity at a particular time. These are arrived at through the accounting equation which states that total debts are equal to all assets put together plus shareholders’ equity.
Key Features of a Balance Sheet
- Assets include cash, inventory, property, equipment, and intangible assets owned or leased with future economic utility
- Liabilities encompass obligations ranging from accounts payable to long-term debt which require settlement over time
- Equity involves invested capital and retained earnings representing claims of shareholders against company assets
- Relationships between line items supply clues about liquidity, leverage, and capital employed effectively
Example of Balance Sheet Analysis
An investor reviewed a manufacturer’s rising fixed asset values and stable current ratios on recent balance sheets as favorable signs of growth and operating flexibility ahead of initiating a position.
Key Takeaways
Interpreting assets, liabilities, and equity line items alongside financial metrics on the balance sheet provides insight into an enterprise’s financial position and ability to fund operations over the long run.