What Is A Balance Sheet

What Is A Balance Sheet

A balance sheet is a document that businesses can use to summarize their company’s financials which investors can then use to determine the value of a company. The sheet details a company’s assets and liabilities, along with the value of its stock. A balance sheet is also used in conjunction with other financial documents, like an income statement or a cash flow statement. Combining the insights of all three of these documents can help you determine whether your company is growing financially or experiencing a deficit.

A company releases its balance sheet to show its assets, liabilities, shareholder equity, as its financial information on a monthly or annual basis reflecting past, present, and future operations. Potential investors rely on the accuracy of these documents to consider if your company is viable to divest their funds.  Balance sheets reflect at any given time how many assets the company owns, how much liability the company owes, and how much shareholder equity is available once liabilities are deducted from assets.

Assets include cash, investments, other tangible assets like intellectual property and are classified under current assets and tangible assets. Current assets include anything that can be converted into cash within one year, may involve cash, stocks, bonds, prepaid expenses, or physical inventory.  Long term or fixed assets are utilized long term by the entity and may include property, buildings, furniture, vehicles, equipment, and machinery.

Liabilities reflect money that the company owes including taxes, loans, salaries, utilities, rent, or supplies. Liabilities are itemized as current liabilities and long-term liabilities on a balance sheet.  Again, current liabilities include short term debts like accounts or notes payable.  Long -Term liabilities reflects outstanding debts that are stretched out for periods longer than one year and can include amortization of bonds payable employee pensions, and other deferred compensations.

Shareholder equity simply reflects a clear picture of the company’s net income, net worth, and overall valuation. Positive shareholder equity numbers mean your company is retaining its earnings and will have something to offer an investor or equity partner in the form of returns.

A balance sheet can also be used to measure working capital, debt to equity, and liquidity ratios determining that the company has enough in cash and cash equivalents to pay its obligations and cover its operations.

If you are looking to get your company’s balance sheets in order, I am available to discuss your needs.  Schedule an appointment at JeffreyLevine.Solutions today and follow me on Instagram @wealthbuilder_solutions.