What Is a Balance Sheet?

A balance sheet is one of the most important documents a business or corporation can prepare. It communicates a snapshot of the financial health of a company at a specific point in time and is typically organized by assets on the left side, liabilities on the right, and shareholders’ equity on the bottom.

Assets are anything that a company owns with inherent, quantifiable value. This includes things like cash and cash equivalents (marketable securities and short-term deposits), accounts receivable, inventory, and long-term investments such as property, plant, and equipment. The assets on a balance sheet are typically tallied as positive numbers and broken down into two further categories: current assets and noncurrent assets.

Liabilities are things a company owes to other parties and are typically reported on the right-hand side of the balance sheet. This can include things like accounts payable, notes payable due within a year, and short-term loans or lines of credit. The liabilities on a balance sheet can also be broken down into two further categories: current liabilities and noncurrent liabilities.

Shareholders’ equity is the amount of capital that a company receives from shareholders, and is calculated by subtracting total liabilities from total assets. It’s this number that can be leveraged to calculate important metrics, such as the debt-to-equity ratio, which demonstrates how much a company is borrowing in order to operate. It’s also the number that can be divided by net income to calculate a company’s return on equity (ROE). This is an indicator of how well management is utilizing shareholder funds. Bilanz

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