Summary of Understanding the Balance Sheet

The balance sheet is the basic financial statement that reveals what a company owns, what a company owes to others, and the investments its owners made. It details how a company finances its operations and what assets the company has acquired with this financing.

The key to understanding the balance sheet is in the most basic and fundamental of all accounting equations: assets must equal liabilities plus shareholders’ equity. All further balance sheet analysis will be built upon that building block.

Studying a company balance sheet helps an investor get a clearer picture of how a company operates and what the condition of its financial health is.