Learning how to read a balance sheet

What is a balance sheet and what is it's importance to your company? A balance sheet is a statement of your business finances. It allows you to see all of the incomes and debts of the company. The other thing the balance sheet will show you is the ownership you have in the company and the ownership of your investors. It includes the assets of the business as well, which will allow you to offset some of your companies debts. Analyzing your companies balance sheet is important so you can see what type of debts you have occurred, which is vital to assessing your situation and if you can use take on more debt to pay for the expansion of your business or the hire of a new employee.

If you want to acquire a new company, you must be able to read the balance sheet as it helps you to determine if it is a good investment or now. You want to look for signs of weakness in the company and to know if it will hurt your investment of it is something that can be overcome.

Understanding the financial condition of a company is vital in order to see if this is a wise investment decision or not. Anyone that is trying to strengthen their investment accounts needs to have the balance sheets of the companies they are investing in before they just dump a lot of money into the company without seeing any type of future for the company and for their investment.

Investors in your company need to see accurate balance sheets. The balance sheet will record information from a particular point in time, which allows them to see if your company is worth investing in or not. Most of the balance sheets will provide information about a particular point in time such as the end of a quarter or the end of a fiscal year.

Correctly record your assets and equity of the business to provide you with accurate numbers to work with. There may be assets that are not correctly recorded on your system that need to be, which is why you need to keep a close eye on them and to update your records often. Investors need accurate numbers and your lenders will ask for these reports as well. Lenders can increase your interest rates if you are slow to pay back your debts or your business credit rating starts to drop.

As you are reading a balance sheet, you need to be aware of some of the key terms that will make it easier to read. Some of the terms you need to become familiar with include the following:

• Accounts receivables


• Intangible assets


• Cash and cash equivalents


• Liabilities

New companies will be able to get their feet wet with balance sheets by pulling up some balance sheets online. Review these sheets and take notes of the things they include, specifically the assets that are finances from debt and equity. Assets list about everything for your company, including your property in addition to your equipment.

Look for the way the other balance sheets are listed and organized. Some of them have assets listed on the left side of the balance sheet while others focus on the debts on the right side. Proper calculations of the balance sheet is another vital part of attracting the right investors for your company. Improper calculations can lead to poor financial strength and outlook for your company and investors will start to drop from your company in a hurry. Use software programs to help with the balance sheet to ensure the numbers are legitimate and adding up correctly.