Business Finance Articles

A balance sheet – or statement of financial position – is a summary of your business’s financial condition at a given point in time. It lists your company’s assets, liabilities and owner’s equity. The balance sheet is one of four basic financial statements and is often described as a snapshot of a company’s financial condition.

The other basic financial statements of a business are the income statement, retained earnings statement and cash flow statement. By showing whether cash flow is adequate and by helping you identify and analyze trends, the balance sheet permits you to assess the financial health of your business.

You can perform a quick but fairly accurate assessment based on:

•    The ratio of debt to equity

•    Cash flow

•    Net gains or losses in equity and assets

•    The ratio of current assets to current liabilities

•    The property, plant and equipment figures in relation to the volume and output of the business

It’s especially important to keep an eye on trends in accounts payable and accounts receivable. Ideally, you want to maintain these at less than a 30-day turnaround. If you find your receivables cycle lengthening, you may need to step up collection efforts.

Lenders, investors and vendors look carefully at balance sheets when deciding to make loans or extend credit to your business. By understanding your balance sheet you can identify your company’s financial strengths and weaknesses.