Balance sheet

Gründerab 13 J.

A snapshot of a company on a reporting date: on the left the assets (what it owns), on the right the liabilities and equity (how it is financed). Assets = liabilities + equity – always.

The balance sheet (Bilanz) is a financial snapshot of a company on a specific reporting date (usually 31 December).

Structure:

ASSETS (left side) – what the company OWNS:

• Fixed assets: land, buildings, machinery, patents
• Current assets: cash, bank balances, receivables, inventory

LIABILITIES AND EQUITY (right side) – how it is FINANCED:

• Equity: money from the owners/shareholders + retained earnings
• Debt: loans, bonds, liabilities to suppliers

Golden rule: assets = liabilities + equity (balance sheet equation). Always! Everything the company owns is financed either by equity or by debt.

What you can read from a balance sheet:

• Equity ratio: high equity = soundly financed
• Debt ratio: a lot of debt = riskier in crises
• Liquidity: enough cash for short-term liabilities?

Did you know? The German word “Bilanz” comes from the Italian “bilancia” (scales) – because both sides must always balance.

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