In our previous post, we talked about the balance sheet and how important it is as a tool for understanding the health of your business. Now we’ll take a closer look at how you can better understand that information!
The balance sheet is basically a snapshot of your company’s assets and liabilities at a specific moment in time. It will give you a good idea of where your company is as far as liquidity and health, and looking at multiple balance sheets over time will indicate the direction your company is taking in terms of growth.
What am I Looking At?
As with any financial document, at first glance a balance sheet can be somewhat confusing. Some of the terms may seem familiar, but you may not know what they mean in this context, or what their relationships are to each other. We’ll walk you through each side of the balance sheet and explain the terms used!
The first side of the balance sheet is Assets.
Fixed Assets are long term resources that aren’t likely to change in a hurry, like property and machinery, or even less tangible possessions like intellectual property rights.
Current Assets are your cash on hand, accounts receivable (money owed to the company) or stocks. These items will fluctuate more from year to year.
The second side of the balance sheet is