Examines the intricacies of balance sheet interpretation in the fields of commerce and industry. The book is designed to act as a learning tool and revisionary aid for students but would be of use to anyone involved in presenting and/or interpreting balance sheets.


The purpose of a balance sheet is to give interested parties an idea of the company’s financial position, in addition to displaying what the company owns and owes. It is important that all investors know how to use, analyze and read a balance sheet. A balance sheet may give insight or reason to invest in a stock.

Frequently Asked Questions

How do you read a balance sheet?

The information found in a balance sheet will most often be organized according to the following equation: Assets = Liabilities + Owners’ Equity. A balance sheet should always balance. Assets must always equal liabilities plus owners’ equity. Owners’ equity must always equal assets minus liabilities.

What does a balance sheet show you?

A balance sheet provides detailed information about a company’s assets, liabilities and shareholders’ equity. Assets are things that a company owns that have value. This typically means they can either be sold or used by the company to make products or provide services that can be sold.

What is a balance sheet in simple terms?

A balance sheet is a financial statement that contains details of a company’s assets or liabilities at a specific point in time. It is one of the three core financial statements (income statement and cash flow statement being the other two) used for evaluating the performance of a business.

What is another word for balance sheet?

In this page you can discover 11 synonyms, antonyms, idiomatic expressions, and related words for balance sheet, like: liability and asset sheet, assets-and-liabilities, statement, annual report, profits-losses, year-end, , capital structure, budget, bankbook and passbook.

Which of the following best describes the balance sheet?

The correct answer is option b) The balance sheet reports the assets, liabilities, and stockholders’ equity at a specific date.

What is the most important part of the balance sheet?

Many experts believe that the most important areas on a balance sheet are cash, accounts receivable, short-term investments, property, plant, equipment, and other major liabilities.

What affects the balance sheet?

Buildings, land and equipment owned by the company are categorized as assets on the balance sheet. Assets represent the equity in the business. As the value of the assets increases, the equity in the business increases. The equity calculation on the balance sheet is directly impacted by the value of the company assets.

What are the elements of balance sheet?

A typical balance sheet contains three core components: assets, liabilities, and shareholder equity.

What is the difference between assets and liabilities?

In its simplest form, your balance sheet can be divided into two categories: assets and liabilities. Assets are the items your company owns that can provide future economic benefit. Liabilities are what you owe other parties. In short, assets put money in your pocket, and liabilities take money out!

Why is it important to know how do you read and interpret financial statements?

Financial statements give business owners insight into how their company is performing. It is crucial for a business owner to understand how to read a financial statement. Otherwise, the owner would never know whether the company is managing its money wisely.

What does the balance sheet summarize for a business?

A balance sheet is a financial statement that reports a company’s assets, liabilities, and shareholder equity. The balance sheet is one of the three core financial statements that are used to evaluate a business. It provides a snapshot of a company’s finances (what it owns and owes) as of the date of publication.

What are the three main ways to analyze financial statements?

Three of the most important techniques include horizontal analysis, vertical analysis, and ratio analysis. Horizontal analysis compares data horizontally, by analyzing values of line items across two or more years.

What does a weak balance sheet mean?

The creditors of the company can take it over, and leave nothing for the shareholders. To spot such a company, look at the debt to equity ratio. If it is higher than 50%, the debt holders own more assets in the company than the equity holders.

What should a healthy balance sheet look like?

Strong balance sheets will possess most of the following attributes: intelligent working capital, positive cash flow, a balanced capital structure, and income generating assets.

What are good balance sheet ratios?

Most analysts prefer would consider a ratio of 1.5 to two or higher as adequate, though how high this ratio depends upon the business in which the company operates. A higher ratio may signal that the company is accumulating cash, which may require further investigation.