Balance

A balance sheet is a key part of a company's annual report and provides a snapshot of the company's financial situation on a specific date. It shows what assets the company has and how these are financed through debt and equity. The balance sheet is used by investors, lenders, and business partners to assess the company's financial strength and risk.

What does a balance sheet tell us?

The balance sheet is divided into two main sections:

• Assets – what the company owns
• Liabilities – how the assets are financed

The two sides must always balance (assets = liabilities), which is why it is called a balance sheet. If they do not balance, there is an error in the accounts.

Assets: The company's values

Assets represent the resources available to the company. They are typically divided into:

Fixed assets

Assets used over a longer period of time – e.g. machinery, equipment, vehicles, software, and real estate.

Current assets

Assets that can be quickly converted into cash – e.g., inventory, accounts receivable, and cash and cash equivalents.

Current assets are particularly interesting for suppliers and creditors because they affect the company's liquidity and ability to pay bills.

Liabilities: Equity and debt

Liabilities show how the company has financed its assets.

Equity

The portion that the owners have contributed or earned through profits.

Debt obligations

Can be divided into:

• Short-term debt (due within 1 year) – e.g., accounts payable, VAT, installments
• Langfristet gæld – fx banklån og leasingaftaler

En høj andel af kortfristet gæld kan være et risikosignal, hvis virksomheden samtidig har lav likviditet.

Why is balance important for credit and risk assessment?

When assessing whether a company is a stable partner, the balance sheet is often used as one of the first indicators. Among other things, the balance sheet can show:

• whether the company has strong equity and can withstand losses
• whether the debt is too high in relation to earnings
• whether there is sufficient liquidity to pay invoices on time
• whether there is a risk of capital being tied up that could affect operations

The balance is therefore included in most decisions regarding credit terms, credit limits, and payment terms.

Balance sheet vs. income statement

Although both are part of the annual report, the two statements show different things:

• Balance sheet: Snapshot of the company's finances
• Income statement: The company's operations during a period (income and expenses)

The result affects equity, and therefore the two statements are closely related.

Typical signs of financial risk in the balance sheet

When suppliers, banks, or collection agencies analyze a balance sheet, they keep an eye on:

• Low equity → high risk of loss
• High debt ratio → pressure on the economy
• Large inventory → risk of capital tie-up
• Many receivables → risk of bad debtors
• Low liquidity → risk of delayed payment

These indicators may influence the assessment of whether the company should be granted credit or requires stricter terms.