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Balance sheets and profit and loss statements provide investors with crucial analysis. They contain similar information, but they have some important differences, as well. Basically, the balance sheet shows how much a company is worth, while the P&L statement reveals if a company is profitable or not.

The balance sheet sums up a company’s financial position for one specific point in time. The P&L statement shows revenues and expenses during a set period of time.

The P&L statement provides net income, and is more focused than either the cash flow statement or the balance sheet. It shows if a company is in the red or the black.

Balance sheets balance out three major accounts: assets, liabilities and shareholders’ equity. Balance sheets also reveal what a company owns and owes, as well as the full value of long-term investments and debts.

The P&L statement requires accountants to add a company’s revenue on one portion and its expenses on another. Expenses are subtracted from revenue to come up with a profit or loss. The balance sheet’s basic formula is assets equal liabilities plus owners’ equity.

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