What do the balance sheet figures mean? 

Many entrepreneurs first familiarise themselves with the income statement when looking at the financial statements. It quickly shows how the company has performed during the financial year. In contrast, the balance sheet is easily overlooked, even though it provides important information about the company's financial situation. 

From the balance sheet, you can see, for example, what a company owns, how much debt it has, and how its operations are financed. When you understand the key figures on the balance sheet, you get a better overall picture of your company's finances and can make more informed decisions. 

The statement tells about the company's financial situation at one moment in time. 

The income statement describes a company's performance over a specific period. It shows, for example, revenue, expenses, and the profit for the financial year. 

The balance sheet, in turn, shows the company's financial situation on a specific day, usually at the end of the financial year. It states what the company owns and how these assets have been financed. 

When you look at the income statement and balance sheet together, you get a considerably more comprehensive picture of a company's finances than by reading only one report. 

Correspondingly – what does the company own? 

The left-hand side of the balance sheet is the asset side. It comprises the company's assets, meaning everything the company owns. 

This includes, for example: 

• convenient bank account  
• Accounts receivable, i.e. unpaid customer invoices  
• warehouse  
• machinery and equipment  
• other assets owned by the company.  

 

Assets are generally divided into fixed and current assets. Fixed assets are long-term acquisitions, such as machinery, equipment, or other fixed assets. Current assets, on the other hand, are assets that are converted into cash more quickly, such as accounts receivable, inventory, or bank account balances. 

If a company has a lot of accounts receivable but little money in the bank, its liquidity can be tight at times. For this reason, the balance sheet complements the income statement and helps to understand the company's financial situation. 

Liabilities – how were the company's assets financed? 

The right-hand side is the liabilities side. It shows where the company's assets come from. 

The response consists of two main groups: 

• Own capital, which include owners' investments and retained earnings.  
• Foreign capital, such as bank loans, trade payables, and other payables.  

 

The basic principle is simple. Assets and liabilities are always equal. Every euro used by a company is financed either by equity or debt. 

Make the most of every opportunity? 

The balance sheet has many lines, but an entrepreneur doesn't need to know how to interpret every single one. Following just a few key figures helps to better understand the company's financial situation. 

Particular attention should be paid to the following points: 

• Cash and cash equivalents to tell how much money the company has available at that very moment.  
• Trade receivables This shows how many outstanding invoices customers still have. If their number is constantly increasing, it's worth monitoring that invoices are also paid on time.  
• Own capital It tells of the company's financial stability. The stronger the equity capital, the better the conditions for the company to withstand changes and make new investments.  
• Veils It's worth relating it to the size and business of the company. A loan isn't automatically a bad thing, but it's good to monitor its amount regularly.  

 

Why is it worth looking at a balance sheet? 

It is not only a mandatory part of the financial statement but also an important tool for monitoring a company's finances. It allows you to assess, for example, the company's solvency, liquidity, and how the financial situation is developing over time. 

Even though an accountant prepares the balance sheet, it's advisable for the entrepreneur to understand its key figures. When you know what they mean, it's easier to discuss the company's finances and make decisions about things like investments, financing, and business growth. 

If any of the figures in the balance sheet raise questions, it is worth discussing them with an accountant. The balance sheet is most beneficial when it is actively used in monitoring the company's finances and not just when the annual accounts are finalised. 

If you want to go through your company's balance sheet and understand what the figures mean for your specific business, we are happy to help. Get in touch, and we'll look at your company's financial situation together.