C H 7 A P T E R THE BALANCE SHEET WHAT'S A BALANCE SHEET? WHAT DOES IT MEAN? So far, we have concerned ourselves mainly with generating income. After all, isn't that why a business exists? For it is the income that eventually translates into cash, and it is the cash that can buy the yachts, villas, and other good things for the owners and managers of an enterprise. However, for most businesses, success requires some tools. There was a time when many service businesses required only pencils, brooms, or shovels. That is no longer true. Bookkeepers need computers, janitors need vacuums and scrubbers, and ditch-diggers need backhoes. Assume you and I each own separate ditch-digging operations, and you have a good backhoe and I have only a shovel and a wheelbarrow. You obviously are going to be at a competitive advantage. When we (as managers of our businesses) or our bankers look at the relative merits of our businesses, we need to know not only how much profit we made last year, but what tools we have on hand with which to make those profits repeat this year. An income statement or profit and loss report doesn't tell us much in this area. And there is another factor that is not revealed by an income statement--how much money did we borrow and do we still owe to buy that equipment? 119