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A balance sheet provides a picture of assets and liabilities of the business at a specific point in time. The balance sheet, along with the income statement and cash flow statement, are the primary financial tools for assessing a company and its operations. A balance sheet may not provide a true picture of the value of the business because it reflects historical costs and does not reflect appreciation of assets.

Structure of the balance sheet

The left column of the balance sheet shows assets while the right column show liabilities and shareholders' equity. Assets are divided into current assets and non-current assets (e.g., tangible assets such as property and equipment, and intangible assets such as goodwill and patents). Liabilities are divided into current liabilities (due within one year) and long-term liabilities. (Reading the balance sheet).

Financial ratio analysis

Data from the balance sheet (as well as the income statement and cash flow statement) can be used to better understand a business and its operations. For example, the debt-to-equity ratio shows the level of the company's financial leverage -- the degree to which debt has been used to finance growth. (Reading the balance sheet).

A family business balance sheet

Some family businesses think about their family business balance sheet as including both financial and human assets. In addition to financial assets and liabilities, these family businesses believe that long-term success requires paying attention to and investing in the human/family assets such as family connections, maturity, knowledge, etc. Using a family mission statement and creating family business policies provides structured approaches to enhancing human capital in the family business. (Cohn, 2005).


Further reading and external links

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