Why the Balance Sheet Is Important to Investors

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Why the Balance Sheet Is Important to Investors

The balance sheet is the fundamental report of a company’s possessions, debts, and capital invested. Before investing in any company, an investor can use the balance sheet to examine questions such as the following:

• Can the firm meet its financial obligations?
• How much money has already been invested in this company?
• Is the company overly indebted?
• What kinds of assets has the company purchased with its financing?

These are just a few of the many relevant questions you can answer by studying the balance sheet. The balance sheet provides a diligent investor with many clues to a firm’s future performance. Once you completely understand the balance sheet, making informed investment decisions will be much easier for you.