A balance sheet is one of the fundamental documents that make up a company’s financial statements, along with the income statement, the cash flow statement and the statement of retained earnings.
Your balance sheet gives you a summary of your company’s financial position at a point in time and provides a clear picture of what you own and what you owe. A continuous series of balance sheets allows you to track your company’s liquidity over time.
Banks and investors will also look at the balance sheet to better understand the financial health of your company before investing in it or lending you money.
“The balance sheet not only provides you a snapshot of what the company is like at that moment, but it’s an important document used by lenders to assess a loan request,” says Fanny Cao, Senior Advisor, Product Development at BDC.
Cao says a balance sheet allows you to see how the company is performing financially and if it has sufficient funds to invest in its operations. “It classifies your assets and liabilities by short- and long-term. You see the obligations that you have to meet within the next year.”