What Is a Balance Sheet, and How Is It Analyzed?

what is a balance sheet and how is it analyzed

If you have any familiarity with finance, you might be aware that a balance sheet is a tool used to measure the financial status of a given company. To prepare a balance sheet is to make a document that you can use to track both a company’s income and expenses.

In short, if you were to read a balance sheet, then you could see whether or not a company is making a profit. After all, you should be able to determine if a company is making more or less money than it spends, which can be taken as an indicator of and problems.


Contents of a Balance Sheet

There are some components to look for when using sheet templates in Excel, so as to let balance sheets do their jobs, such as:

  • Assets, which lists all the elements that contribute to bringing money to the entity, such as cash payments, inventory, etc.
  • Liabilities, which lists all the elements that drain capital from the entity, such as wages payable, accounts payable, etc.
  • Owner’s/shareholder’s equity, which is the part of balance sheet templates which lists all the payments to which the owners or shareholders are due because of their contributions to the company.

How to Analyze a Balance Sheet

As for finding out how to read these printable sheet templates, some of the necessary steps would include:

  • Remember that a balance sheet is effectively an equation.
  • First read the assets section of the sheet. This tells you how much capital has been brought into the entity.
  • Then read the liabilities section in order to determine what the entity’s money had to be used for, including equity.
  • Keep in mind that both sides of a proforma balance sheet templates should equal, or else the assets side should be higher. This tells you whether the company either equals expenses or makes a profit.


Who Can Use Balance Sheet Templates?

These particular sheet templates can find use in the hands of different kinds of people. After all, anyone with an interest in a company’s financial situation would definitely find these sheets an invaluable tool. This would include such peoples as:

  • Accountants, who are perhaps the most obvious users of these free sheet templates. After all, it would be within the purview of their duties to analyze a given entity’s spending vis-a-vis its income. This would determine if the company is in dire financial straits or not.
  • Business owners, particularly small business owners, who would need to determine the relative health of their companies to determine what their next move ought to be. In that case, it is important that they stay aware of their status in order to function.
  • Shareholders, which would be most applicable for larger businesses. After all, as investors, these people would have a vested interest in ensuring that the company remains healthy so as to get a return on their investment.
  • Bankers, who may need to be aware of the health of a given company as part of staying aware of the financial situation in general. This would be necessary to help the bank strategize any of its plans for the future.

With the help of these insights, you should have a much better idea of how you could possibly use a balance sheet for your own business when necessary.

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