How to read a balance sheet

[Editor’s Note: This is an excerpt from “Business Acumen for Strategic Communicators: A Primer.” You can purchase the book here and Ragan/PR Daily readers receive a 30% discount with the code BUSINESS30.]

While an income statement shows an organization’s revenues, expenses and the resulting profit or loss generated for the period under review, a balance sheet shows an organization’s assets (i.e., what it owns that is a source of value) and liabilities (i.e., what it owes) for a certain point in time.

The balance sheet also shows shareholders’ equity or net worth for the enterprise, which roughly indicates how much money would be left over for shareholders if the organization sold off all of its assets and paid off all of its liabilities. The name balance sheet comes from the fact that an organization’s total assets must equal or “balance” relative to the organization’s total liabilities plus shareholders’ equity. Balance sheets provide an important snapshot view of an organization’s financial staying power and ability (or inability) to endure significant disruptions to operations.