Balance Sheet

A balance sheet is a financial statement that provides a snapshot of a company's financial position at a specific moment in time. It follows a fundamental equation: Assets = Liabilities + Shareholders' Equity. This means everything a company owns (assets) is financed either by borrowed money (liabilities) or by the owners' investment (equity). The balance sheet is divided into two sides that must always balance. The left side (or top) lists assets, categorized as current (convertible to cash within one year) or non-current (long-term). Common assets include cash, accounts receivable, inventory, property, and equipment. The right side (or bottom) lists liabilities and equity. Current liabilities include accounts payable and short-term debt; long-term liabilities include bonds and mortgages. Equity represents owners' stake in the company. Investors analyze balance sheets to assess financial health and risk. The current ratio (current assets divided by current liabilities) measures short-term liquidity - ability to pay bills coming due. The debt-to-equity ratio shows how much the company relies on borrowed money versus owner investment. Book value (total assets minus total liabilities) represents what would theoretically be left for shareholders if all assets were sold and debts paid. Balance sheet analysis reveals important information about a company's financial strategy. Companies with lots of cash and little debt have financial flexibility and can weather downturns. Those with heavy debt loads face fixed interest payments regardless of business conditions. Asset composition tells you about the business model - manufacturing companies have lots of physical assets while technology companies often have more intangible assets like patents and software. Comparing balance sheets over time reveals trends in financial health. Growing cash, increasing equity, and manageable debt levels are positive signs. Declining cash, rising debt, and shrinking equity may indicate problems. Understanding balance sheets is essential for fundamental stock analysis and evaluating the financial strength of potential investments.