A Balance Sheet reports what a company owns (Assets), what it owes (Liabilities), and the residual value belonging to the owners (Equity)

The Accounting Equation must always balance:

Assets = Liabilities + Owner’s Equity

1. Assets: What the company owns (e.g., Cash, Buildings, Receivables).
2. Liabilities: What the company owes to outsiders (e.g., Accounts Payable, Loans).
3. Equity: The owners' stake; the funds invested plus retained profits.

They measure liquidity — the company's ability to pay its short-term bills. (Current Assets vs. Current Liabilities).

Paid-In Capital is money invested by the owners. Retained Earnings is the company's cumulative profits kept and reinvested.

It measures solvency and risk. It shows what percentage of the business is funded by debt versus by the owners.

It is an accounting way of recognizing that long-term assets (like equipment) wear out and lose value over time. This cost is tracked separately from the original asset cost.

It is a key operational metric that measures short-term financial health. Calculation:

Working Capital = Current Assets − Current Liabilities

It restates every line item as a percentage of a single base number (usually Total Assets) to facilitate comparison.

To allow users to compare the financial structure of different companies (or the same company over years) regardless of their absolute size.

Each line item is divided by the total of the base number (Total Assets) and then multiplied by 100.

Common Size (%) = ( Specific Account Amount/Total Assets ) x 100

It signals the relative importance or size of that item. For example, if Accounts Receivable suddenly represent 40% of Total Assets, it suggests a high risk of non-collection.

It provides context but can mask underlying operational problems. It only shows proportions, not cash flow or profitability rates.