This statement is an excellent tool to assess a company’s financial situation. A balance sheet may be used by an analyst to construct a variety of financial ratios that assist in establishing how well a firm is functioning, how liquid or solvent it is, and how efficient it is.

Changes in balance sheet accounts are also utilized in the cash flow statement to compute net cash flow.A positive change in plant, property, and equipment, for example, is equal to capital expenditure less depreciation expense.