The balance sheet of an organization shows its financial condition at a specific point in time. Monthly, quarterly and annual balance sheets tell the story of an entity's fiscal health, enabling stakeholders to assess past performance and predict future trends. Different types of organizations, such as banks and corporations, include different types of information on their respective balance sheets.
The general rule is that an organization lists its assets and liabilities in descending order on its balance sheet. The first assets listed are cash and liquid assets. The first liabilities listed are the ones that are due soonest. The entity totals its assets and liabilities at the bottom of the balance sheet and subtracts the liabilities from the assets to arrive at the owners' investment in the entity, or net worth.
Bank Balance Sheet
The first few lines of a bank balance sheet are similar to a company balance sheet, listing cash, securities and interest-bearing deposits. However, one of the most significant assets on a bank balance sheet is the line item for net loans -- money the bank loaned to its customers. Among the liabilities on a bank's balance sheet are interest-bearing and non-interest-bearing deposits, short-term debt and long-term debt.
Company Balance Sheet
A company's balance sheet starts with its cash and cash equivalents, marketable securities and accounts receivable. Depending on the company's business, it may also list as assets items such as raw materials, finished products and inventory. A company also lists its fixed assets such as manufacturing factories, fixtures and equipment. Other assets may include intangibles such as intellectual property: patents, trademarks and copyrights. After listing assets, a company's balance sheet lists its current liabilities -- those that are due within the next 12 months -- and long-term debt, lease obligations, deferred income taxes and other non-current liabilities.
Analyzing a Balance Sheet
Analysts review an organization's balance sheet to assess its liquidity, defined as its ability to meet its short-term financial obligations, and its solvency, defined as the entity's ability to endure for the long term. Analysts compare the organization's current assets to current liabilities; ideally, a small business's current assets equal at least twice the value of its current liabilities. To assess an entity's solvency, analysts compare total debt to owners' equity. The measure of solvency varies from business to business. Notably, a bank primarily finances its operations with debt, while a service company such as law firm or accounting firm primarily finances its operations with owner equity.
- Ohio State University; The Balance Sheet: What Does It Mean? Marianne M. Huey
- MarketWatch.com; Bank of America Corp. Balance Sheet; December 2010
- MarketWatch.com; Ford Motor Co. Balance Sheet; December 2010
- "Inc." Magazine; How to Read a Balance Sheet; Matt Quinn; June 21, 2010
- Apple. "2017 10-K," Page 42. Accessed March 25, 2020.
Marilyn Lindblad practices law on the west coast of the United States. She has been a freelance writer since 2007. Her work has appeared on various websites. Lindblad received her Juris Doctor from Lewis and Clark Law School.