Importance of Balance Sheet

Welcome to today’s class!!

We are thrilled to have you in our class!!

In today’s Store Management class, we will be learning about Importance of Balance Sheet 

Importance of Balance Sheet 

importance of balance sheet

Whether it is your own company or you plan on becoming an accountant, or even working in a field related to finance, having in-depth knowledge of what a balance sheet is, its components and the way to prepare one is considered important. Let’s dive deeper into this topic.

A balance sheet is an essential component that assists in the smooth running of a business. Here are some of the reasons that explain the importance of a company’s balance sheet:

  • Assist Banks In Evaluating a Firm’s Net Worth

When a business wants to expand its operations and make future investments, it seeks loans from banks. Under such circumstances, the banks will look at the firm’s balance sheet to evaluate whether or not it has the financial position to pay back the loan amount.

  • Helps Investors Take Decisions 

While choosing a firm for the purpose of investment, a majority of investors look at the company’s balance sheet to determine its financial position. Moreover, they combine it with various other factors to assess the firm’s future growth potential. 

  • Serves As A Determiner For Risk And Returns

If you are a business owner, maintaining a balance sheet will enable you to determine the ease at which you can meet your short-term obligations. Furthermore, you can also put a check on the liabilities of your business if they are rapidly growing and avoid the chances of bankruptcy. 

  • Enables Financial Analysis

Having a proper balance sheet will let you get a clear idea of the liquidity conditions of your company. Thus, you can view the cash flow of your firm, working capital funding, trade receivable status and also how much daily transactions your business can afford. 

In summary, Balance sheets provide the basis for computing rates of return for investors and evaluating a company’s capital structure.

 

Evaluation

What is a Balance Sheet?

 

Reading Assignment

Identify three users of a Balance Sheet 

 

Weekend Assignment

Give six importance to a Balance Sheet.

 

We hope you enjoyed today’s class. In our next class, we will be talking about Meaning of Turnover.

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