Legal Definitions - statement of condition

A statement of condition is another name for a balance sheet. It is a fundamental financial document that provides a snapshot of an organization's financial health at a very specific point in time, such as the close of business on a particular date.

Think of it like a photograph of a company's financial standing. It lists:

• Assets: Everything the entity owns that has value (e.g., cash, property, equipment, investments).
• Liabilities: Everything the entity owes to others (e.g., loans, unpaid bills, mortgages).
• Equity: The residual value or the owner's stake in the entity, calculated as assets minus liabilities.

The core principle is that assets must always equal the sum of liabilities and equity, reflecting a balanced financial position.

Here are some examples of how a statement of condition is used:

• Example 1: A Startup Seeking Investment

  A new technology startup is looking for venture capital funding. To convince potential investors, the founders prepare a statement of condition as of the end of the last quarter. This document details their current assets (like cash in the bank, office equipment, and intellectual property), their liabilities (such as outstanding loans or unpaid vendor invoices), and the initial equity contributed by the founders. Investors examine this statement to understand the company's current financial structure and assess its stability and potential for growth at that specific moment.

  How this illustrates the term: The statement provides a precise, date-specific overview of what the startup owns, owes, and the founders' stake, giving investors a clear financial snapshot for their decision-making.

• Example 2: A Large Retail Chain's Annual Report

  At the end of its fiscal year, a major retail chain publishes its annual financial report for shareholders and the public. Included in this report is a statement of condition dated December 31st. This statement itemizes the company's vast assets (e.g., inventory in stores, real estate, cash reserves), its significant liabilities (e.g., bonds issued, accounts payable to suppliers, employee benefits owed), and the total shareholder equity. This allows investors and analysts to evaluate the company's financial position at that exact year-end moment and compare it to previous years.

  How this illustrates the term: It provides a comprehensive, point-in-time summary of the retail chain's financial resources, obligations, and ownership value, crucial for public transparency and financial analysis.

• Example 3: A Homeowner Applying for a Mortgage Refinance

  An individual homeowner wants to refinance their existing mortgage to get a lower interest rate. As part of the application process, the bank requests a personal financial statement, which functions as a statement of condition for the individual. This document lists their assets (e.g., value of their home, savings accounts, investment portfolios, vehicles) and their liabilities (e.g., current mortgage balance, car loans, credit card debts) as of the application date. The bank uses this information to determine the homeowner's net worth and overall financial capacity to manage the new loan.

  How this illustrates the term: Even for an individual, this document serves as a snapshot of their personal financial standing—what they own versus what they owe—at a specific moment, enabling the bank to assess their creditworthiness.