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Fundamentals of Financial Management, Third Edition by Vyuptakesh Sharan

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18.2 BALANCE SHEET

A balance sheet indicates a firm’s financial position as on a particular date, usually on the last day of a particular fiscal period. In particular, it shows the assets of the firm and how the assets are financed by different types of capital. The assets are displayed on one side, and the sources of the assets or the liabilities are displayed on the other.

As a natural corollary, a balance sheet measures a firm’s liquidity and profitability. It measures liquidity in the sense that it shows whether the firm is able to pay its debts in a short-run scenario. Similarly, solvency means the firm’s ability to meet all its long-term and short-term debt.

The assets and liabilities are displayed in a particular order, say, order of performance. ...

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