The balance sheet is a financial statement that provides a description of a company's assets, liabilities and net worth at a specific point in time. The balance sheet shows the dollar amount of your assets compared to your liabilities and owners' equity. The asset side of the balance sheet shows, among other things, cash, inventory, receivables, investments, land, buildings, and equipment. The liability side of the balance sheet includes accounts payable, bills payable, wages and salaries payable, interest expense, etc. Owner's capital on a balance sheet equals assets - liabilities. Some accounts under owner's equity would include: common stock, preferred stock, retained earnings, and treasury stock, among others. Investors look at financial statements because they are a good indication of how well a company is doing. According to Richard Loth (2016), the strength of a company can be assessed through its balance sheet using three broad investment measures: 1) the cash conversion cycle, 2) the fixed asset turnover ratio, 3) the return on assets and 4) the impact of intangible assets. Say no to plagiarism. Get a tailor-made essay on "Why Violent Video Games Shouldn't Be Banned"? Get an Original Essay A company has two choices when financing its assets on the balance sheet. The first option is to borrow, through the liabilities of the company and the second option the equity or shareholders' capital. When a company borrows against its liabilities, it is essentially running up a bill that it must repay to others. When the company finances its activities through equity capital, they invest their own money in the company or investors invest in the company. If the company is public, it can issue shares to available investors to increase its assets through share capital. Capital is an essential part of identifying a good and healthy company. If Accompagna does not have capital it cannot operate and therefore it will never grow. The two categories into which working capital can be divided are gross working capital and net working capital. Gross working capital, according to Motley Fool (2016), “is a measure of a company's total financial resources.” Gross working capital is the total assets of a business that can be converted into cash within one year or less. It includes assets such as cash, receivables, short-term investments, inventory, etc. Net working capital, on the other hand, does a much better job of showing the full picture of a company's financial situation. Net working capital is discovered when we take the total current assets of the company and subtract the current liabilities. So, unlike gross working capital, when you apply for a loan your net working capital would not increase. The debt ratio is equal to total debt divided by total assets. It is a ratio that can help determine both company and consumer leverage. The higher the ratio of this equation, the greater the leverage of the company, while the lower the ratio of this equation, the greater the leverage of the consumer. However, this equation doesn't always tell the whole story. To see the full picture, you need to consider the industry type along with the debt-to-GDP ratio as some industries will almost always have a higher or lower debt-to-GDP ratio than another industry type. Using all these processes above, you can illustrate the strength or weakness to your boss..