Answer:
Step-by-step explanation:
A balance sheet provides a snapshot of a company's financial health at a specific point in time. It shows the company's assets, which are resources the company owns, its liabilities, which are debts or obligations the company owes to others, and its net worth or equity, which is the difference between the assets and liabilities.
The balance sheet gives an idea of the company's financial position and its ability to meet its financial obligations in the short and long term. If the assets exceed the liabilities, then the company has a positive net worth, which is a good sign. However, if the liabilities exceed the assets, then the company may have trouble meeting its financial obligations and may be at risk of insolvency.
Comparing balance sheets from two different points in time can provide valuable insights into a company's financial health and performance. By looking at changes in the assets, liabilities, and equity, an analyst can identify trends and patterns in the company's financial performance, which can help in making informed decisions about investment or lending.
For instance, if a company's balance sheet shows an increase in assets, a decrease in liabilities, and a corresponding increase in net worth, then it is a positive sign that the company is improving its financial position. On the other hand, if a company's balance sheet shows a decrease in assets, an increase in liabilities, and a corresponding decrease in net worth, then it is a red flag indicating that the company may be in financial trouble.
Overall, comparing balance sheets over time can provide a comprehensive understanding of a company's financial health and help stakeholders make informed decisions about the company's future.