Balance Sheet
A financial statement that reports assets, liabilities, and stockholders’ equity on a specific date.
A balance sheet is a financial statement that provides a snapshot of a company’s assets, liabilities, and equity at a specific point in time. The balance sheet is also sometimes referred to as a statement of financial position.
The balance sheet has two sides – the left side displays a company’s assets, while the right side shows its liabilities and equity. Assets are items that a company owns and has significant value to the business. These assets can include things like property, equipment, inventory, and cash. Liabilities, on the other hand, are debts that a company owes to others, such as bank loans, accounts payable, and taxes owed. Equity represents the value that the owners of the company have in the business, which includes things like retained earnings and stockholder investments.
The balance sheet equation is assets = liabilities + equity, meaning that a company’s total assets must always equal the sum of its liabilities and equity. This formula shows that every dollar of assets is either financed by indebtedness or contributed by equity holders.
Analysts use the balance sheet to see how much a company owes and owns and to evaluate a company’s financial stability, liquidity, and leverage. For example, a company with a lot of debt might be a riskier investment than a company with lower liabilities and greater equity. By using the balance sheet, investors can get a better understanding of the financial health of a company and make informed decisions about whether they want to invest in it.
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