A balance sheet is a snapshot of what a company owns, owes and the capital attributable to shareholders at a specific date.
Start with the accounting equation
Assets equal liabilities plus shareholders’ equity. Assets may include cash, receivables, inventory, property and investments. Liabilities may include borrowings, payables and provisions. Equity represents contributed capital and accumulated profits after distributions and losses.
Check liquidity and debt
Compare near-term obligations with cash and assets that can realistically become cash. Then compare total debt with operating cash flow and the stability of the business. Debt is not automatically bad, but weak cash flow and high refinancing needs can create risk.
Study working capital
Rapidly rising receivables may mean customers are taking longer to pay. Inventory growing much faster than sales can signal weak demand or deliberate stocking. Payables can support cash flow, but unusually stretched supplier payments deserve attention.
Look beyond one year
Use at least three to five years when possible. Check acquisitions, write-offs, share issuance and changes in accounting policies. Read the notes because the headline numbers rarely tell the full story.