Over the last several years in Law School, I’ve learned that many of my peers are averse to math. In Prof. Anzivino’s Business Bankruptcy class I distinctly remember painful groans as he explained the time value of money and had the class look at a simple amortization table. In Prof Grossman’s Business Strategy course, I had a friend lean over to me and ask, “What the hell is a balance sheet?” Basic accounting and finance concepts seem to be like nails on chalk board for many law school students. Don’t fear numbers; basic accounting and finance skills can help distinguish your resume from other law school graduates and build better relationships with future clients.
Lawyers should have a basic understanding of a balance sheet, income and cash flow statements.
A balance sheet identifies the assets of an organization and how those assets were financed, either through debt [using someone else’s money] or through equity [using the owner’s money]. For those who are interested in doing M&A, a thorough understanding of a balance sheet is critical. For example, the ability to identify and discuss financial reserves [such as, those related to environmental remediation] can help you to identify, understand, and highlight risk for your client. An entity’s balance sheet also provides an understanding of an operation’s well-being: trends in cash, inventory, revenue producing equipment, receivables, payables, debt equity ratio and retained earnings [to name a few]. It’s also important to understand the relationship between these elements; it’s called a balance sheet for a reason. Read more »