This episode dives into one of the most important financial statements, the balance sheet. I explain why it's called a balance sheet, how a balance sheet is structured and certain things a balance sheet can tell you about your business.

Why is it called a Balance Sheet? In my example, I compared it to buying a home. It looks like this: 100 = 90 + 10 where the 100 is the asset (your home) and the 90 (liability to lender) and 10 (your equity). Assets = Liabilities + Equity

The structure of a Balance Sheet:
Assets
Liabilities
Equity


Liquidity Ratios:

Current Ratio = Current Assets/Current Liabilities

*A current ratio will let you know whether your business will be able to meet it's short term obligations. A current ratio of less than 1 means that your business will NOT be able to meet it's short term obligations. The best current ratio is between 1.2 -2. If you have a current ratio higher than 2, you may not be managing your assets in the best manner.

Quick Ratio = Current Assets - Inventory/Current Liabilities

* A quick ratio takes out inventory and will give you a much clearer picture on how "liquid" your business really is.

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