Explain the purpose of a balance sheet and analyze Ford Motor Company’s balance sheet from its 2012 Annual Report. In your analysis, you must determine the financial ratios and compare them to industry standards.

Balance sheet (also known as the statement of financial position)

the Total Assets equal the Total Liabilities and Equity. That must always be true on a balance sheet. If that is not the case, there is an error somewhere.

Accounts Receivable, which is where the accounts of customers who owe money to the company are tracked, is increasing in value. This could be a sign of trouble or it could mean that sales on credit increased from year to year. When Juan and Susan see this number, they know they will need to research it further to find out whether there is a problem collecting from customers.

Another possible indicator of a problem is that Inventories are increasing in value. This could indicate that sales are slowing because inventory is sitting on the shelf and not selling—or it could mean the company has added to the variety of inventory carried.

Consider a gymnast walking a balance beam: If she steps a bit to the right or left, she will fall off. She can only stay on the beam if she balances perfectly in the center.

The Liability section shows the funds borrowed from lenders and the Equity section shows money invested in the company by the investors (the owners of the company). The Equity section also shows the profits retained to reinvest in the company in an account called Retained Earnings.

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