Reading the accounts
Balance sheet
A snapshot of what a company owns and owes at one moment in time.
How it works
Assets on one side, liabilities and shareholders’ equity on the other, and the two must balance by construction: everything owned was funded either by borrowing or by owners.
Unlike the income statement, it is a point in time rather than a period, which is why ratios mixing the two usually use an average of the opening and closing balance.
Formula
Assets = Liabilities + Shareholders’ equityRelated terms
- AssetsEverything a company owns or controls that is expected to produce future value.
- LiabilitiesEverything a company owes to someone else.
- Book valueWhat the balance sheet says shareholders own: total assets minus total liabilities.
- Working capitalThe money tied up in day-to-day operations: inventory and money owed to you, less money you owe.
- Net debtTotal borrowings minus cash — what a company would still owe if it used all its cash to repay debt.
Mentioned in
More in Reading the accounts
- Audit opinion
- Breakeven
- Capital expenditure
- Adjusted earnings
- Cash burn
- Accrual accounting
- Cash conversion cycle
- Accounts receivable
All 51 Reading the accounts terms · The full glossary, 433 terms
Educational reference only. Nothing here is investment advice or a recommendation to buy or sell anything, and tax treatment depends on your own circumstances and the country you are in.