Utah General Contractors - Business and Law Practice Exam

Which financial statement provides a company's net worth?

1. Income statement

2. Cash flow statement

3. Balance sheet

4. Statement of retained earnings

The correct answer is: Balance sheet

The balance sheet is the financial statement that provides a company's net worth, which is also known as total equity or net assets. It reflects a company's financial position at a specific point in time by summarizing its assets, liabilities, and equity. The net worth is calculated by subtracting total liabilities from total assets, giving a clear picture of what the company owns versus what it owes. In contrast, the income statement focuses on a company's revenues and expenses over a specific period to show profit or loss, while the cash flow statement details the inflows and outflows of cash and is used to assess liquidity and cash management. The statement of retained earnings outlines changes in retained earnings over a period, reflecting how much profit is retained in the company after distributions to shareholders, but does not summarize the overall financial position as succinctly as the balance sheet does.