The balance sheet: what a company owns and what it owes
intermediate
Automated material · TradeAlmanac editorial deskPrepared by a language model from our stored data and checked by an editor.
A balance sheet answers two questions: what the company owns and whose money paid for it.
Two sides
Assets are what the company has: production capacity, inventory, receivables, cash.
Liabilities and equity are the sources: shareholders' capital and obligations to creditors.
The two sides matching is not a property of a good company but an identity: every asset was bought with something.
65 137 000 000 000
What to look at
The ratio of equity to debt — Leverage: how much debt is too much.
The composition of assets: how much is real production capacity and how much is intangibles and goodwill created by acquisitions.
Working capital: inventory and receivables growing faster than revenue signal that sales are not being paid for promptly.
What is not in a balance sheet
Profit for the period — that is in the income statement: How to read the income statement.
Cash movement — that is in the cash flow statement: The cash flow statement: why it is more honest than profit.
The three statements together
None of the three gives a full picture on its own. A balance sheet without cash flow does not show where the assets came from; profit without a balance sheet does not show at what cost it was earned.
Related: Russian accounting standards and IFRS: the difference and what to read.
Related instruments
Prepared by a language model from our stored data and checked by an editor.
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