Understanding the Balance Sheet

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Understanding the Balance Sheet

In order to make an informed investment decision, you should review a company’s balance sheet. Let us look at what a balance sheet entails.

Things To Know

  • Assets must always equal the sum of liabilities and shareholders’ equity.

The balance sheet is one of the most important financial statements of a company. It is reported to investors at least once per year. It may also be presented quarterly, semiannually, or monthly.

Why it is important

The balance sheet provides information on what the company owns (its assets), what it owes (its liabilities), and the value of the business to its stockholders (the shareholders’ equity). The name "balance sheet" is derived from the fact that these accounts must always be in balance. Assets must always equal the sum of liabilities and shareholders’ equity.

A balance sheet is a good measure of a company’s financial health. But it is not the only tool to use.