A snapshot of one day
The balance sheet shows what a company owns (assets), what it owes (liabilities) and what is left over for owners (shareholders’ equity) on a specific date, usually the end of a quarter or year.
The equation is always: assets = liabilities + equity.
Assets
- Current assets will turn to cash within about a year: cash, short-term investments, accounts receivable (money customers owe) and inventory.
- Long-term assets include property, equipment, goodwill from acquisitions and other items.
Liabilities
- Current liabilities are due within a year: accounts payable, short-term debt, the portion of long-term debt due soon.
- Long-term liabilities include bonds the company issued, long-term loans and lease obligations.
Shareholders’ equity
Equity is assets minus liabilities. It includes money invested by owners and profits the company has kept (retained earnings). Divide it by shares outstanding and you get book value per share, used in the price-to-book ratio.
A made-up example
Company X has 500 in current assets and 300 in current liabilities, so its current ratio is 500 ÷ 300, about 1.7. That suggests it can cover near-term bills. If it also has 400 in long-term debt and 600 of equity, its debt-to-equity ratio is 400 ÷ 600, about 0.67.
Ratios to try
- Current ratio: current assets ÷ current liabilities. Below 1 can signal tight liquidity.
- Debt-to-equity: total debt ÷ equity. Compare with companies in the same industry, since norms vary widely.
- Cash vs debt: how much cash covers how much debt?
Where to find one
In a company’s quarterly (10-Q) and annual (10-K) filings at sec.gov, or on its investor relations page. Pair it with the income statement and free cash flow.
Quick answers
Is more debt always bad?
No. Debt can fund growth. What matters is whether the company earns enough to pay it comfortably, and how much it owes compared with peers.