Although sometimes overshadowed by the all-important income statement, the balance sheet can offer essential insights into a company's financial health. It revolves around the balance between a company’s assets and liabilities. It helps assess factors important to overall financial health, like liquidity and solvency.
Liquidity refers to a company’s ability to cover its short-term liabilities with readily available assets. This includes being able to pay suppliers in cash each month. Solvency refers to a company’s ability to meet its long-term obligations. It looks at a firm’s ability to repay long-term loans or bonds.
