A balance sheet gives you a clear picture of what your business owns and owes. It’s one of the most important financial statements for any business, whether you’re looking to grow or not. A balanced sheet can help you determine your liquidity, spot financial strengths and weaknesses, and make informed decisions as your business grows.
The balance sheet is a snapshot of your company’s assets, liabilities and owner’s equity at the end of a reporting period. It is deeply connected to the income statement and cash flow statement, and can’t be analyzed in isolation.
Essentially, it is a list of your business’s assets, on the left side, and its liabilities and owner’s equity, on the right. Assets include anything of value that your business owns, or could potentially turn into cash. These can be tangible items like cash in the bank, inventory, computer equipment, receivables, and even intangible items like your reputation, brand, or logo. Liabilities are what your business owes others, including recurring expenses, debt repayments, and payroll. Owner’s equity includes any money invested in your company through stock purchases, or earned by your company from profit margins or dividends.
To calculate the balance sheet, you start with your total assets and subtract your total liabilities from that number. The result is your company’s net worth, or its equity capital (shareholder’s equity). This is the amount of your company that you own, minus any debt owed by the company (debt/equity ratio).
In most cases, this is what your investors want to see to make sure that your company can cover its short-term financial obligations. Often, a higher current ratio, or more days cash on hand, is a sign of a healthy balance sheet.
The balance sheet is also an important tool for assessing your company’s efficiency. In conjunction with the income statement, you can use it to determine financial ratios, such as asset turnover and working capital cycle, to see how well your company is using its assets to generate revenue. You can even use the balance sheet to calculate your company’s leverage ratio, which is calculated by dividing your company’s total debt by its total shareholder’s equity. Bilanz