A balance sheet is an essential financial statement that provides insights into your business’s assets, capital use, and immediate and long-term liabilities. As a business owner, you should know how to analyse your business’s financial statements.
In addition, you should also hire a professional accountant who can help you create impeccable, reliable, error-free, and valuable statements that provide an accurate financial picture of your business.
Let’s take a look at what a balance sheet, in particular, can be used for and its role in overall business financial analysis.
What is Balance Sheet Used For?
The role of the balance sheet in business analysis is quite important. It is prepared at a specific point in time and includes the following:
- Assets: These are anything that your company owns that has value. They can either be current or non-current. Current examples include cash, inventory, cash equivalents, prepaid expenses, accounts receivables, etc. Non-current examples include property, equipment, machinery, and any intangible assets with value.
- Liabilities: These refer to things your company owes to internal and external parties. Similar to assets, they can be either current or non-current. Current examples include accounts payable, interest payable, and tax liabilities. Non-current include long-term bank loans.
- Shareholder’s Equity: This is everything that the shareholders in the company own after accounting for all the liabilities. They are also net assets, and small business owners might also term them owner’s equity.
Role of Balance Sheet in Business Analysis
A balance sheet is an important document that should always be used when assessing a company’s financial health. Here’s why:
A balance sheet provides a quick overview of your company’s financial position. For example, your business can cover any short-term obligations if your current assets are greater than your liabilities. Similarly, if it’s the other way around, you’re likely suffering from a cash crunch.
A balance sheet can also be used to compare your business with competitors in the market. You can use the debt-to-equity and quick ratio from the information provided on the balance sheet to determine your financial leverage.
It can help track your company’s performance, identify areas of improvement and help you create strategies to tackle potential issues.
Balance sheets are only useful if they’re created professionally. This is why you should hire accounting services to help create unbiased and error-free statements.
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