Dictionary / Financial statements
What Is a Balance Sheet?
A balance sheet is a snapshot of what a company owns and what it owes on one day. What is left over belongs to the owners.
The balance sheet formula
Assets=Liabilities+Equity
Assets are what the company owns, like cash, buildings and stock in warehouses. Liabilities are what it owes, like debt and unpaid bills. Equity is the owners' share, also called book value.
A home example
You own a $400,000 house with a $300,000 mortgage and $20,000 in the bank. Your assets are $420,000. Your liabilities are $300,000. Your equity is $120,000.
What to look for
- Plenty of cash compared with short-term bills; see the current ratio.
- Debt that is not too big compared with equity; see debt-to-equity.
- Large goodwill, which comes from past acquisitions and can be written down.
See it in real companies
Open a company to see what it sells and how it makes money.
Related terms
Assets and liabilitiesWhat a company owns versus what it owes.
Income statementShows revenue, costs and profit.
Cash flow statementShows where the cash came from and went.
Book valueWhat the company is worth on paper.
Debt-to-equityHow much debt compared with owners' money.
Working capitalShort-term money a company has to run day to day.