A Bilanz is a snapshot of your company’s financial position at a specific moment in time. It shows your total assets, total liabilities and your total shareholder’s equity. Balance sheets are used by investors, creditors, managers and other stakeholders to determine a business’s net worth, financing capacity and ability to pay off debt. In addition, they can help you compare your performance to competitors.
When reviewing a balance sheet, it’s important to remember that the numbers are only as accurate as the information you input into them. Different accounting systems, depreciation methods and inventories can change the figures posted on your balance sheet. Also, human error and managerial judgement can impact the numbers as well.
Most balance sheets have a simple structure with one column listing all assets, usually on the left, and the right-hand side detailing all liabilities and equity. Often, the assets are further divided into current and noncurrent categories with each section being tallied and subtotalled. Generally, the total assets will equal the sum of all the current assets and noncurrent assets. Similarly, total liabilities will be the sum of all your owed money such as taxes, payroll and mortgages with the amount being broken down into current liabilities and long-term debt. Finally, total equity will be listed at the bottom of the balance sheet and is comprised of the owner’s stake in the business if you are a sole proprietorship or shareholders’ equity for a corporation.
The most critical aspect of a balance sheet is that it is a record of your company’s true financial standing at a point in time. You can then use this information to evaluate your business’s strength, identify problem areas and see how you’re performing over a period of time.
If you’re looking to expand your practice, for example, a potential investor can review your current balance sheet to see whether your company is financially sound enough to invest in. Alternatively, you can use the data to calculate your debt-to-equity ratio, which measures how much your company is in debt relative to its stockholder’s equity.
While the information in a balance sheet is helpful, it’s not as comprehensive as a financial statement, which provides more detailed and historical data on your company’s operations. Financial statements are required by law for businesses of any size and provide a more thorough look at your company’s history.