Balance sheet

Definition

What a business owns and owes on one date, the difference its equity.

Why It Matters

The income statement tells you whether the business earns; this tells you what condition it is in, and the two disagree more often than a first-time buyer expects. A profitable company with stretched payables, aging receivables, and a lien on its equipment is a different purchase from an identically profitable one without them, and the working-capital level you will argue over at closing is read from here.

In numbers: A business with $2,400,000 of assets against $1,500,000 of liabilities shows $900,000 of equity, and the working capital inside those two figures is what you have to fund on day one.