Balance Sheet is a representation of a company

Balance Sheet
The Balance Sheet is a representation of a company's Assets and Liabilities and Shareholder Equity at a specific moment in time, for example, Balance Sheet as of June 30. A Balance Sheet is always balanced, Assets on one side, Liabilities and Shareholder Equity on the other. If for example a company has 200 000 in assets, and owes 100 000 to suppliers etc, Shareholder Equity must equal 100 000. 200 000 = 100 000 + 100 000

Assets are all about listing what the company owns including cash, inventory, receivables, pre-paid expenses, short and long term investments, property, facilities and equipment. On a Balance Sheet, the Assets are listed in order of how quickly they can be exchanged for cash. For a coffee company, this means your cash in the bank, investment accounts, money customers owe you on account, inventory of cups, coffee, tea, office products, espresso machine, coffee makers, cash registers and any owned buildings and property. For a coffee company, conserving cash which can be used to make timely acquisitions and reducing debt is the key to long term success.

Liabilities and Shareholder Equity are the opposite side of the Balance Sheet. Liabilities are grouped into two different types, short term and long term. Short term liabilities are things which need to be paid within a year such as any unpaid supplier invoices, phone bills, utilities and taxes. Long term liabilities are usually bank loans, bonds, unpaid rent and lines of credit. An important note about Liabilities, because Assets = Liabilities + Shareholder Equity, increases in debt necessarily reduces Shareholder Equity. Conversely, if a company has very little debt, the owners wealth increases one dollar for every dollar that debt is reduced.

Current Ratio is a tool sometimes used by financial institutions to determine a company's ability to meet it's short term payables. The Current Ratio is expressed as the relationship of Short Term Assets to Short Term Liabilities. A ratio of 1 or better is considered good. A ratio of below 1 would indicate that the company may have a difficult time in meeting it's short term obligations. While not a black and white measure of a company, it is a helpful tool in understanding what your banker thinks of your coffee company.