The Balance Sheet shows the company’s assets and liabilities and how much money the business owes to suppliers at any one point in time as well as how much money it has in the bank. 

Central to this is the cashflow, which needs to be well-managed.

Given the current uncertainties over inflation, interest rate rises and the ongoing and well publicised Ukraine war, supply chain and recruitment issues it is more crucial than ever that businesses scrutinise the relationship between their debts and their equity.

A decade of cheap borrowing has, according to The Economist, resulted in a massive “borrowing binge”, where according to statistics compiled by Bloomberg average business indebtedness has risen to more than three times earnings.

At the same time, according to The Economist “The share of operating cashflows reinvested by American firms in new capital expenditure and research and development has declined over the past decade to 27%, from over 40% in 2009”.

Clearly, as Central Banks raise interest rates in order to try to control inflation, businesses need to be even more scrupulous in scrutinising their monthly management accounts, of which the balance sheet is one part.

They are likely also to need to adjust the ratio between investment, shareholder pay-outs and paying down as much debt as they can.

We have a free tool for you to download that can help you keep a watchful eye on your business’ financial performance. Download it here.