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Balance sheet: What is the Financial position of the company's Assets, Liabilities, and Stockholder's Equity?

Balance sheet: What is the Financial position of the company's Assets, Liabilities, and Stockholder's Equity?

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Expert Solution

The Balance Sheet is one of the four primary Financial Statements that companies must publish every month/quarter/year.

As the Balance Sheet provides the firm's Financial Position, a Company Balance Sheet also knows as " Statement of Financial Position" which reveals the firm's Asset, Liabilities and Owner's Equity.

The Balance Sheet together with the Income Statement and Cash Flow Statement make up the cornerstone of Company Financial Statement.

The Balance Sheet is divided into two parts that based on the following equation must balance each other out. The Balance Sheet shows the following for the Company.

Assets = Liabilities + Owner's equity

Where;

Assets: Items of value the firm owns or controls which it uses to earn Revenue.

Liabilities: What the firm owns

Owner's Equity: What the firm own outright

As the formula above clearly says that the sum of the Firm's Asset must balance to the sum of its Liabilities and Owner's Equities.

Financial Analysts evaluate the Firm's Financial position not by the size of the Asset or liabilities but rather by comparing the numbers on the sheet using the various measures like ratios, statements etc.

The Liabilities and Owner's equities helps in defining the firm's capitalisation and level of leverage and the Assets define the firm's liquidity for the period.

Thus a Companies' Financial position is defined by its Assets, Liabilities and Stockholder's Equity.

ekkarill92 answered 1 year ago
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