Along with the statement of cash flows and income statement, the balance sheet is one of the three most important documents used by investors to understand the financial condition of a company. Structurally, the balance sheet is relatively simple in concept. Every company's balance sheet is comprised of three elements:
Assets: often defined as an economic resource which is owned by the corporation and is expected to provide future benefits to its operation. Accounting rules allow assets to take two forms: Tangible Assets, which have a physical form such as a building or a piece of machinery. Intangible Assets, which usually involve a legal right or claim such as a patent.
Liabilities: these are the debts of a corporation. Nearly all businesses have liabilities; even the most successful and profitable of companies will make purchases on credit. Most companies also find it desirable to borrow money as a means of expanding operations more rapidly. Typical liabilities of the company include long-term debt, notes payable, and accounts payable.
Equity: also referred to as owner's equity and shareholder's equity, these are the resources that have been invested by the owners of the company. Increases in owner's equity comes from two sources: the initial and any additional investments by the owner, as well as earnings resulting from the profitable operation of the company
The relationship of the above three elements in the balance sheet are as follows:
Assets = Liabilities + Owner's Equity
Generally, the importance of the balance sheet stems from its ability to allow investors to analyze the amount of debt a company is carrying relative to the investments it owns and the equity, or worth, of the company.
The balance sheet for this company is rather useless as their corporate aim was rapid growth. As a fashion retailer and their