Balance sheet

The balance sheet is one of the most important statements in a company's accounts. It shows what assets and liabilities a company has, and how the business is funded (by shareholders and by debt: the financial structure of the company).

The balance sheet provides information that is useful when assessing the financial stability of a company. A number of financial ratios use numbers from the balance sheet including gearing, the current assets ratio and the quick assets ratio. However, ratios based on profits and cash flow are at least as important for assessing financial stability: the most important of these are interest cover and cash interest cover.

A balance sheet is usually presented in two sections that must reach to same total - this requirement that the two sections balance is the reason it is called a balance sheet.

The typical format of a balance sheet is:

• Assets
  • Fixed assets/Non-current assets
    • Property, plant & equipment
    • Intangible assets (goodwill is often shown separately)
    • Investments in subsidiaries (not in consolidated accounts), associates and joint ventures
  • Current assets
    • Stocks
    • Receivables
    • Cash
• Total Assets
• Liabilities
  • Current liabilities
    • Short term debt
    • Payables
    • Tax
    • Provisions
  • Non-current liabilities
    • Long term debt
    • Pensions
    • Provisions
• Total Liabilities
• Net assets (total assets less total liabilities)

And in the second section:

• Equity
  • Share capital
  • Share premium account
• Other reserves
• Retained earnings
• Total shareholder's equity
• Minority interests (only in consolidated accounts)
• Total equity

There are a number of common variations on this. The most common moves liabilities from the first section to the second. In this case the two "sides" of the balance sheet show the assets on the first side and the way they are funded on the second.

Another common variation is showing current liabilities as a deduction from current assets.