Balance Sheet
Properties
The term balance sheet refers to a financial statement that reports a company’s assets, liabilities, and shareholder equity at a specific point in time. Balance sheets provide the basis for computing rates of return for investors and evaluating a company’s capital structure.
In short, the balance sheet is a financial statement that provides a snapshot of what a company owns and owes, as well as the amount invested by shareholders.
Warren Buffett: I spend ‘more time looking at balance sheets’ than income statements:
Buffet stated he looks more into a balance sheet rather than income statement since the balance sheet is harder to manipulate.
# Structure
The balance sheet adheres to the following accounting equation, with assets on one side, and liabilities plus shareholder equity on the other, balance out:
This formula is intuitive. That’s because a company has to pay for all the things it owns (Assets) by either borrowing money (taking on Liabilities) or taking it from investors (issuing Shareholder Equity).