What is a Balance Sheet

What is a balance sheet. Balance sheet ratios. All about the balance sheet item and balance sheet format.

Balance Sheet Ratios

The balance sheet gives a clear snapshot of a company’s assets at a specific point in time. Balance sheets are usually drawn at the end of each financial year. Considering both the opening and the closing balance sheets gives you a way to analyze and evaluate how the company’s financial position has developed over the course of the year.

Balance Sheet Ratios: Liabilities

Balance Sheet Item: Owners’ Funds

This category includes all claims made by the business owners. It includes the company’s issued common stock, capital reserves and revenue reserves.

Issued Common Stock

This captures the value of shareholdings. Stock price fluctuations, as determined by investors’ different investment and trading appetites, affect the value of this portion of the accounts.

Capital Reserves

Capital reserves are almost permanent funds, and come from sources other than regular stock market trading. Common sources of these capital reserves include currency gains, share premiums and revaluation of fixed assets. Capital reserves cannot be distributed as dividends.

Revenue reserves

Also known as general reserves or retained earnings, these derive from a company’s trading surpluses, and are usually invested in the further growth of the business. Sometimes, they might be distributed as dividends.

Balance Sheet Item: Long-Term Loans

These liabilities all have repayment terms of at least one year. Examples include term loans, bonds, mortgages, debentures; they can be further divided into medium-term loans (3 to 5 years) and long-term loans (more than 5 years).

Balance Sheet Item: Current Liabilities

This section of the balance sheet is similar to the ‘Current Assets’ section of the balance sheet. It includes all accounts payable to creditors, short-term loans such as bank overdrafts and other day-to-day short-term liabilities.

Balance Sheet Ratios

More on the Assets section of the balance sheet: Reading a Balance Sheet.

Return from What is a Balance Sheet to Financial Investment Advice

Return from What is a Balance Sheet to Financial Freedom and Passive Income Success Guide