Reading Balance Sheets: All You Need to Know
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What Is a Balance Sheet?
What Is Included on a Balance Sheet?
Cash Cash equivalents (e.g, currency, stocks, and bonds) Accounts receivable (money owed to you by customers) Short-term investments Inventory Prepaid expenses Land Buildings Machinery and equipment (minus depreciation) Intangible assets, such as patents, trademarks, copyrights, and goodwill (you would list the fair price a buyer might pay to purchase these) Long-term investments
Accounts payable (what you owe suppliers for items you bought on credit) Wages you owe to employees for hours they’ve already worked Small business loans that you have to pay back within a year Taxes owed Credit card debt Loans that you don’t have to pay back within a year Bonds your company has issued Leases Provisions for pensions Deferred tax liabilities
What Do Balance Sheets Indicate?
Important Ratios Associated With Balance Sheets
Balance Sheet Example
How to Read a Balance Sheet
What You Can Do With the Information on a Balance Sheet
Liquidity By comparing your business’s current assets to its current liabilities, you’ll see exactly how much cash you have readily available. It’s generally wise to have a cushion between your current assets and liabilities so you’re able to cover your short-term financial obligations. Efficiency Comparing your income statement to your balance sheet can give you an idea of how well your company can use its assets to generate revenue. Leverage Comparing the debts to the equity on your balance sheet can help you understand how much leverage your business has and, in turn, how much financial risk it faces.
Other Tips on Understanding Balance Sheets
3 Small Business Loan Tips
Online lenders generally offer fast application reviews and quick access to cash. Conveniently, you can find recommended small business loans by using Lantern by SoFi. If you are launching a new business or your business is young, lenders will consider your personal credit score. Eventually, though, you’ll want to establish your business credit. Traditionally, lenders like to see a business that’s at least two years old when considering a small business loan.
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