Balance Sheet

What is a Balance Sheet?

A balance sheet is a financial statement that is a snapshot of a company's finances at a specific point in time. It is one of the three fundamental financial statements that shows the capital structure of the company: what the company owns, and how it is financed, either via equity or debt.

In order to know of the financial health of a company evolves, it is often interesting to compare balance sheets at different times.

Balance Sheet formula

The balance sheet is divided into two sides :

• On the left side, the company's assets (cash, inventory, ...)
• On the right side, the company's liabilities (rent, taxes, loans, ...) and shareholders' equity

The two sides of the balance sheet must always be equals, giving the following formula:

Assets = Liabilities + Equity

In order to make sure the balance sheet stays balanced, accountants use a double-entry accounting system.

For example, if a company uses cash to pay a $100,000 debt, we will remove $100,000 both on assets to account for the cash used, and $100,000 on liabilities to account for the debt paid.

Assets

Assets are listed on the left side of the balance sheet, generally broken down into two categories: current assets and non-current assets.

Current Assets

Current Assets includes:

• Cash and Cash Equivalents
• Short-term Investments
• Receivables
• Inventory

Non-current Assets

Non-current Assets includes:

• Property, Plant, and Equipment
• Goodwill
• Long-term Investments

Liabilities

Liabilities are represented on the right side of the balance sheet and represent what the company owes. It is generally broken down into current and non-current liabilities.

Current Liabilities

Current Liabilities includes:

• Accounts payable
• Short-term Debt
• Deferred revenue
• Inventory

Non-current Liabilities

Non-current Liabilities includes:

• Property and Equipment
• Goodwill
• Long-term Debt

Equity

Shareholders' equity represents what the company is worth once all liabilities have been paid.

At the beginning of a business, common shares value is equal to the amount invested in the company at its inception. When a company grows its earnings and produces a profit, it can appear in the balance sheet a retained earnings or be paid out to shareholders as a dividend.

• Common Stock and Preferred stock holdings
• Retained earnings

Example: Apple Balance Sheet

For a more concrete example, here's a Balance Sheet from Apple :