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The debt-to-equity ratio shows how much equity the company has relative to its liabilities. So after the first year, your personal balance sheet would show your vehicle’s value as $18,000. This same idea applies to all your non-current business assets too. Assets are the things your business owns and uses to generate revenue. If a company has an inventory turnover ratio of 2 to 1, it means that the company’s inventory turned over twice in the reporting period. If a company has a debt-to-equity ratio of 2 to 1, it means that the company has two dollars of debt to every one dollar shareholders invest in the company.
Moving down the stairs from the net revenue line, there are several lines that represent various kinds of operating expenses. Although these lines can be reported in various orders, the next line after net revenues typically shows the costs of the sales. This number tells you the amount of money the company spent to produce the goods or services it sold during the accounting period.
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A liquidity ratio of 2 means you have $2 in liquid assets for every $1 of current liabilities. The higher the ratio, the more liquid assets to cover your current debts. A balance sheet can provide valuable information about your company’s financial health.
We all remember Cuba Gooding Jr.’s immortal line from the movie Jerry Maguire, “Show me the money! They show you where a company’s money came from, where it went, and where it is now. Yes, understanding banks and NBFC financial statements is a little tricky.
3 –The liability side of the balance sheet
balance sheet’ equity, on the other hand, is the term used for a corporation with stockholders instead of a sole proprietorship. When a business decides to reinvest earnings into the company itself, that money goes into this category on the balance sheet. With balance sheet data, you can evaluate factors such as your ability to meet financial obligations and how effectively you use credit to finance your operations .
