The Balance Sheet…the 2nd of 3 Financial Statements
Do you know what a Balance Sheet is?
Most CEOs that I work with don’t...
isn't cash flow what's most important?
Actually, if you were to ask me... it's the most important of the 3 statements
Because a Balance Sheet is the one statement that gives you visibility into ALL 3 statements
OK...first, let's define what a Balance Sheet is
A Balance Sheet tells you:
➡ How much the company OWNS or substantially CONTROL..IE anything of economic value (Assets)
➡ What the company OWES (Liabilities)
➡ And how the company has been FUNDED (equity)
To put extra correctly, Liabilities and Equity BOTH show you how a company has been funded, but liabilities are CAPPED, while equity is UNCAPPED
So how does a Balance Sheet tell you about profitability?
Or Cash flows?
You can learn the profitability of a business by understanding the NET CHANGE in RETAINED EARNINGS / NET INCOME on your Balance Sheet
If those 2 numbers are growing...the company has been posting a positive net income! 🤑🤑🤑
..and you can learn about where CASH is going by taking the difference in all other Balance Sheet accounts (roughly)
So as you can see - the Balance Sheet gives you the most information!