Balance sheet

The balance sheet is a snapshot taken at the end of a reporting period. On one side are assets: cash, money owed by customers, inventory, property and equipment, and intangible assets such as acquired brands and goodwill. On the other are liabilities, such as supplier bills, loans, bonds and leases, and shareholders' equity. It always balances because of the accounting identity: assets equal liabilities plus equity. Equity, also called book value or net assets, is what would notionally be left for shareholders if every asset were sold at its stated value and every debt repaid.

Investors read the balance sheet to judge financial strength. Key questions are how much debt the company carries relative to its equity and earnings, whether it has enough cash and liquid assets to meet near-term obligations, and how much of its assets are hard to value, such as goodwill from past acquisitions. A strong balance sheet lets a company survive downturns without raising money on bad terms. Remember that book values are accounting figures, often based on historical cost, and can differ greatly from what assets would actually fetch, in either direction.