What is it?
A statement of the assets, liabilities, and capital of a business at a particular point in time.
How does it work?
A balance sheet is a financial statement that showcases the assets, liabilities, and shareholder’s equity of a business at a particular point in time. It provides a snapshot of a company’s financial condition and illustrates the fundamental accounting equation: Assets = Liabilities + Shareholder’s Equity.
When is it useful?
Balance sheets are critical in the world of business as they provide valuable insights into a company’s financial health. They are used by internal management to make informed business decisions, external investors to evaluate the company’s worth and sustainability, and creditors to assess the company’s ability to repay its debts. The balance sheet gives a clear picture of what a company owns (assets), what it owes (liabilities), and the amount invested by shareholders (equity).
Real-World Impact
For instance, Apple Inc., one of the world’s largest technology companies, releases its balance sheet annually. As per their 2020 balance sheet, the total assets were $323.89 billion, total liabilities were $258.55 billion, and the total shareholder’s equity was $65.34 billion. By analyzing these figures, one can ascertain Apple’s financial stability, liquidity, and operational efficiency.
How to Get Started
Understanding the balance sheet is beneficial when using Empress’s suite of tools and services. Empress provides various tools that help in the effective analysis of balance sheets, which in turn, can guide businesses in strategic decision-making, risk management, and financial planning.
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The balance sheet is one of the three main financial statements used in business operations and financial analysis, the other two being the income statement and the cash flow statement. The balance sheet not only reflects the financial health of a company at a specific point in time but also provides a basis for computing rates of return and evaluating the company’s capital structure.