Balance sheet

A statement of everything a business owns and everything it owes at one specific moment. What is left after subtracting the second from the first belongs to the owners.

Example

Northgate's assets of 3,705,000 equal liabilities of 1,700,000 plus equity of 2,005,000 at the end of Year 2.

Important

It is a photograph, so one alone cannot show direction. Two consecutive balance sheets tell you far more than either does on its own.

Related terms

• Shareholders' equity — What is left for the owners once every liability is subtracted from every asset. Usually made up of the capital owners put in plus the profits the business has kept.
• Current ratio — Current assets divided by current liabilities - a rough measure of whether a business can meet what falls due within the next year out of what it expects to turn into cash in the same period.
• Net debt — Borrowings minus cash. The measure of indebtedness that accounts for the money already sitting in the bank to repay it.

Lessons that explain it

• The balance sheet: what it owns and what it owes — A photograph taken on one specific day, showing what the business has, who has a claim on it, and what is left over for the owners. It is the statement that tells you whether a bad year is survivable. (13 min)
• What the three say together — Each statement answers a question the others cannot, and the interesting information is almost always in the disagreements between them rather than in any single figure. (14 min)

All 578 terms in the Investing glossary