Glossary
Balance sheet
A snapshot of what a company owns, owes and the owners' stake at one date: assets equal liabilities plus shareholders' equity.
On this page
A balance sheet is the financial statement that lists everything a company owns (assets), everything it owes (liabilities) and the residual belonging to its owners (shareholders' equity) at a single point in time, usually the last day of a quarter or fiscal year. Where the income statement shows performance over a period, the balance sheet is a photograph, and it is the first place to look when judging whether a company is financially sound.
How it is organized
The statement always balances because of the accounting equation:
Both sides are split into current items (due or usable within a year) and non-current items. Typical lines include cash, receivables, inventory and property on the asset side; accounts payable, short-term debt, long-term debt and lease obligations on the liability side; and common stock, retained earnings and treasury stock within equity.
How investors use it
- Liquidity: can the company pay bills due this year? See the current and quick ratios.
- Leverage: how much debt supports the business? See debt-to-equity and interest coverage.
- Quality of assets: large goodwill balances or bloated inventory deserve scrutiny.
- Book value: equity per share underpins the price-to-book ratio.
Limits to keep in mind: most items are recorded at historical cost, many valuable intangibles such as brands built in-house never appear, and a single date can be dressed up. Compare several periods, and read it alongside the cash flow statement.