Financial Report: Reading the Balance Sheet for Making an Investment Decision

Financial Report: Reading the Balance Sheet for Making an Investment Decision

A balance sheet is one of the four forms of a financial report that companies need to have. If you have seen a company's annual report, you will notice that there are a series of pages that contain tables and numbers. A number of people, like you, do not know how to understand these figures. They only think that this piece of paper contains information that may be important to a company's annual reports. However, if you have been presented with this information so you can make a basis for your investment, it is really important that you know where to begin.

What is a Balance Sheet?

To make things simple, the balance sheet contains a summary of the financial balances of a company, business partnership, or sole proprietorship. It depicts the assets, liabilities and ownership equity of the company enlisted on a specific time period of its fiscal year.

Among the four basic financial report forms, the balance sheet is the only one which is applicable to a single point of time within the calendar year of a business. In terms of investing money to this company, you will need to use this report to help you understand its standing. Because of this report, you can be warned of the potential problems of the company you are planning to invest in. Once you use this information correctly, you can determine how much the business is really worth. If you can read this financial statement, you will no longer have to ask whether or not the company is a good investment.

Reading the Balance Sheet

If you wish to read this financial statement of a business, it is important you know the three different parts of the balance sheet:

Assets- Things that have an actual value to the business such as a car, property, and the money brought in by the company.

Liabilities- These are the opposite of assets. A liability is made up of expenses which costs the business' money.

Owner's Equity- This tells the difference between the two aspects of the balance sheet. In short, this gives information on how much money is left after the debt has been paid.

If you wish to invest money in a business, it is important that you take a look at its financial report. You can start with the balance sheet and move on from there.

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