Reading Company Fundamentals
Chapter 3 of 5
The balance sheet
8 min read
The balance sheet is a snapshot on one date of what the company owns and owes. It always balances: assets equal liabilities plus shareholders' equity.
The three parts
- Assets: what the company owns, such as factories, inventory, receivables and cash.
- Liabilities: what it owes, such as loans, supplier payments and provisions.
- Equity: what is left for shareholders after all liabilities, made up of share capital and accumulated profits.
Reading it for strength
Debt-to-equity (illustrative)
- A company has debt of ₹300 crore and equity of ₹600 crore.
- Debt-to-equity is 300 ÷ 600 = 0.5: it owes 50 paise for every rupee of its own money.
- A ratio above 1 means more borrowed than owned. Safe levels differ by industry.
- Debt: is it rising faster than profit? Can interest be covered comfortably?
- Receivables: if customers are taking much longer to pay, sales may be less healthy than they look.
- Inventory: piling up can signal weak demand.
- Cash: a cushion for bad times.
Key takeaways
- Assets = liabilities + equity.
- Debt and its trend are the first things to check.
- Always judge ratios against industry peers.
This content is for education only and is not investment or tax advice. Mutual fund investments are subject to market risks; read all scheme-related documents carefully.