Analysing a Balance Sheet

After analyzing the income statement next, we will learn how to analyze a company's balance sheet.

How to Analyze the Balance Sheet of a Company?

A Balance Sheet highlights the financial condition of a company. It offers a snapshot of the company's health. It tells us how much a company owns (assets) and how much it owes (liabilities) at a particular period of time. The difference between what it owns and what it owes is its equity also commonly called "net assets" or "shareholders equity".

The balance sheet is named by the fact that it represents a business' financial structure balances in the following manner:

Assets = Liabilities + Shareholders' Equity

A balance sheet of a company provides the users of financial statements with a lot of critical information. This information can be studied to draw various conclusions about the financial health of a company. Understanding and analysing the balance sheet data is an integral part of financial analysis as a whole. So it is essential to understand assets, liabilities & shareholder's equity. We will describe each of them in the upcoming units of this module.

A sample Balance sheet of company XYZ: