Generally, the balance sheet is examined by investors to assess the financial safety of a company. The type of debt, financial health ratios and balance sheet valuation are three main areas investors could look at when doing the assessment.
The balance sheet is one of the key financial statements for investors to focus on when conducting financial analysis for potentially investable companies. In simple terms, a company’s balance sheet lists what it owns and owes. The balance sheet is also known as the statement of financial position because it shows the company’s net worth at a point in time.
There are three main parts to the balance sheet of a company: assets, liabilities and equity. The relationship between these three elements can be summarised by the following formula: Assets – Liabilities = Equity.
