The Bilanz is the cornerstone of a company’s financial statements. This is because it depicts the company’s current financial position at a specific point in time, and shows how the company’s assets are financed by its liabilities and shareholder equity. It is also used to calculate key metrics, such as liquidity and leverage.
For companies seeking investors or loans, the balance sheet is often a critical piece of information that they need to present. By showing that the company’s current assets are greater than its current liabilities, the balance sheet can show potential investors that the company is likely to be able to fulfil its short-term obligations in the future. It can also help assess the company’s level of risk, by looking at how much debt it is carrying compared to its shareholders’ equity.
A balance sheet is composed of several different accounts, which are grouped into two major categories: assets and liabilities. Each of these account groups are then further subdivided into more detailed categories. For example, the assets section will often include current assets, non-current assets, and tangible fixed assets. Similarly, the liabilities section will often include both current and long-term liabilities, as well as cash and cash equivalents. The final group is Shareholders’ Equity, which includes the value of both common stock and retained earnings.
What Is a Balance Sheet?
A balance sheet provides a snapshot of a business’s financial health at a specific point in time. It lists all the company’s assets (including cash) on one side and its liabilities and shareholder’s equity on the other. The total for each of these must always equal the other, meaning that a balance sheet is balanced.
Liquidity – The first item on the assets list is cash, which is followed by the company’s liquid assets (cash and cash equivalents). This category includes any assets that can be easily converted to cash, such as marketable securities and bank accounts. It also includes the balance of sales revenue still owed to the company on credit, after adjusting for bad debts.
Leverage – The next item on the liabilities list is debt, which is followed by a total for long-term debt and interest payments. This is the total for all of a company’s outstanding loans, plus any debt related expenses. Finally, the company’s shareholders’ equity is listed, which consists of the value of both the common stock and retained earnings.
The balance sheet is an essential report for both existing and prospective investors, as it gives them a clear picture of a company’s financial strength at a given moment. It’s also useful for gauging the efficiency of a company’s operations, by showing how much of its resources are being used up by its debts. This can be helpful for identifying areas where improvements can be made.