Question

Think of a balance sheet as a photograph - a snapshot in time of a company's financial position (assets and liabilities). Think of an income statement as a movie - a yearlong or quarter-long view of the firm's operations.

What thoughts do you have about when you might use each?

Answer 1

Balance sheet tells about the company performance at a point of time and the components it has are assets and liabilities. It tells us about the company liquidity and solvency position by doing ratio analysis like Current ratio, quick ratio and debt to equity ratio. Income statement tells about the company performance over a period of time. It tells about the company profitability from its operations and by doing ratio analysis like Gross profit margin and net income margin