What Is a Balance Sheet

A Bilanz is a snapshot of your business’s financial condition at a given moment. It shows what your company owns (assets), what it owes (liabilities) and what shareholders have invested in the company (shareholder’s equity).

The balance sheet is broken down into sections to make it easier to analyze. The assets section lists all your business’s current assets, including cash and cash equivalents, marketable securities, accounts receivable and inventory. The liabilities section includes your recurring expenses, such as rent and utilities, interest payments on debt and payroll. It also lists your long-term debts and your pension obligations. Finally, the total shareholder’s equity section reports your common stock value, retained earnings and accumulated other comprehensive income.

Each section of the balance sheet is ordered by how liquid they are, with the most liquid accounts listed first. This helps you quickly identify how much of your assets could be turned into cash if necessary. This information can be helpful when assessing your firm’s liquidity and working capital cycle.

When used in conjunction with a profit and loss statement, a balance sheet can be useful when calculating key financial ratios. For example, dividing your total current assets by your total current liabilities yields the quick ratio and is an important indicator of your company’s ability to meet its short-term debt commitments. In addition, calculating your total asset turnover and the rate of return on assets can help you evaluate how well your company uses its resources.

A balanced sheet can be a valuable tool for both managers and investors. It provides a clear picture of your company’s net worth, which can be useful when making strategic decisions about expanding your business or investing in new opportunities. It also allows you to compare your company’s net worth against that of your industry peers.

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