The Basic Formula
Assets = Liabilities + Shareholders' Equity
Everything a company owns (assets) was paid for either by borrowing money (liabilities) or by shareholder investment (equity). It always balances — hence the name.
Assets — What the Company Owns
Current Assets (converted to cash within 12 months)
- Cash & Cash Equivalents
- Accounts Receivable (money owed to the company)
- Inventory
Non-Current Assets (long-term)
- Property, Plant & Equipment (PP&E)
- Intangible Assets (patents, brand value)
- Long-term Investments
What to look for: Is cash growing? Is inventory building up (could signal slow sales)?
Liabilities — What the Company Owes
Current Liabilities (due within 12 months)
- Accounts Payable
- Short-term Debt
- Accrued Expenses
Non-Current Liabilities (long-term)
- Long-term Debt
- Deferred Tax Liabilities
What to look for: Is long-term debt manageable? Is it growing faster than revenue?
Shareholders' Equity — What's Left for Investors
Assets minus Liabilities. It represents the net worth of the company from a shareholder's perspective.
- Retained Earnings — Profits kept in the business (not paid as dividends)
- Common Stock — Capital raised from issuing shares
Quick Balance Sheet Health Check
| Metric | Formula | Healthy Range |
|---|---|---|
| Current Ratio | Current Assets ÷ Current Liabilities | Above 1.5 |
| Debt-to-Equity | Total Debt ÷ Equity | Below 1.0 |
| Cash Position | Year-over-year trend | Growing |
| Retained Earnings | Year-over-year trend | Growing |
