Also known as a statement of financial position, a balance sheet is a snapshot of your company’s financial condition at a specific date. There are three sections in a balance sheet: assets, liabilities, and owner’s equity.
In this video…
In this video, you’ll learn how to use a balance sheet to understand your financial position. Greg also explains the importance of calculating your current ratio to make sure your construction business is solvent.
Insight Into Your Company’s Financial Condition
A balance sheet is a snapshot of a company’s financial condition on a specific date, usually the end of the month. The balance sheet will help you get a handle on the financial strength of your construction company — it’s also known as a statement of financial position. Not monitoring your balance sheet can prove fatal to a construction business.
Reading a Balance Sheet
A company balance sheet has three parts: assets, liabilities, and ownership equity. Your assets are what your company owns, items that have value. Your liabilities are what your company owes, obligations or debts. Your equity is the owner’s investment in the business, plus retained earnings that have been reinvested in the business. Assets must equal liabilities plus equity.
Is Your Construction Business Solvent?
The balance sheet can help you keep an eye on your business. Use your balance sheet to quickly figure your current ratio, — the ratio shows solvency. Your banker, vendor, or bonding agents are sure to use this ratio, so it’s important for you to understand how to calculate it. Learn how to calculate a current ratio by watching our ratio video in this series.
Your company balance sheet shows your company’s net worth or book value, and can show you trends. Are receivables taking longer to collect, for instance? Use these numbers to help you run your business.
In the next two videos, we’ll learn about your income statement.
Next Video: Income Statement Part 1