The Benefits of a Balance Sheet

A balance sheet provides an at-a-glance snapshot of the financial condition of your business. It shows the company’s assets (what it owns) and liabilities (what it owes), with the total of both equaling its owner’s equity.

Assets are items of value that your company owns or has in its possession, such as cash, inventory, PP&E and intangibles. They are grouped into categories based on their convertibility and physical existence: current assets, noncurrent assets and fixed assets. Noncurrent assets include such items as long-term investments, PP&E and intangibles. Current assets are those that your company can convert to cash or cash equivalents within one year, such as short-term deposits and marketable securities. Liabilities are the company’s debts to outside parties, and are grouped into two categories: current liabilities and long-term liabilities. Current liabilities include those that will come due in the next 12 months, such as accounts payable and income taxes payable. Long-term liabilities are those that will come due over a period of more than 12 months, such as capital leases and mortgages.

Shareholders’ equity is the remainder of a company’s net assets after deducting its liabilities. A healthy balance sheet gives companies more breathing room to operate under stressful conditions, withstand scrutiny from shareholders and regulators, and pursue opportunities like M&A and share buybacks. A balance sheet can also help you track your company’s performance over time. By comparing the current balance sheet to the same document from a previous reporting period, you can see whether your company has more or less assets and liabilities and calculate financial ratios. Bilanz Hattingen