A balance sheet is a financial statement that conveys the financial position of a company. It contains data related to the company's assets, liabilities, and shareholders' equity at a particular point in time. This data is used for assessing the return rates and capital structure of the company.

There are three main sections in a balance sheet. They are:

  • Assets: These are the valuable resources the firm has, which can be used for future benefits. These include both tangible and intangible assets.
  • Liabilities: These are the obligations of the company. This is the money that the company owes to its stakeholders.
  • Owner's equity: It is the net book value, the total worth of the company.

The formula used in balance sheets:

Balance sheet formula

Accountants and analysts use balance sheets alongside other financial statements such as income and cash flow statements to calculate various financial ratios.