How To Read a Balance Sheet

What is a Balance sheet?

A balance sheet is a financial statement that lists a company’s assets, liabilities, and shareholder’s equity at a specific time period. Essentially providing information on what the company owns, owes, and amount invested by shareholder’s. This information can be used to assist in evaluating a company’s financial wellbeing by using tools such as a debt-equity ratio.

A balance sheet is split into two sections where liabilities and shareholder equity fall under one bracket and assets falls under the other. Both sides of this balance sheet should be equal in value, if this is not the case then the balance sheet does not accurately reflect the company’s financial position for that period in time. This error should be investigated and rectified by the company.

What falls under each category?

The asset side of a balance sheet is split into current and non-current assets, listed in order of their liquidity. Current assets can be converted into cash in one year or less, while non-current cannot. Non-current assets provide economic benefit over a period of time longer than a year. This can include tangible assets such as machinery or buildings, or intangible assets such as patents and copyrights.

Current assets can include cash or cash equivalents, accounts receivable, and inventory. Cash equivalents are safe assets that can easily be converted into cash. Cash is a current asset that can be accessed immediately, including bank accounts and cheques. Accounts receivable refers to short term amounts owed to the company, an example of this is where a company sells based on credit. Inventory is the company’s raw materials, including goods still in production and finished goods ready to sell.

Similarly the liability side is split into current and non-current liabilities that are due within a year or in over a year respectively. Current liabilities can include bills the company owes over the next year, the current portion of a long term debt, and employee wages. An example of a non-current liability may be a bond that matures in longer than a year.

Shareholder equity refers to the initial amount of money invested into the business and the money yet to be paid to the owners of a business or its shareholders. This section of the balance sheet is closely tied with the company’s performance; a period of time facing financial difficulties may result in a decrease in shareholder equity and vice versa.

Example

Below is the most recent released balance sheet from Apple Inc:

In this balance sheet, we see that total assets and total liabilities & shareholder’s equity are equal to $331.2 billion. We see on the asset side that Apple’s ability to access cash through current assets has decreased by around $34 billion while their non-current assets increased by around half a billion US dollars. The liability side is structured as expected with current and non-current liabilities.

The shareholder’s equity displays common stock value. However, we see the shareholder’s equity section display accumulated deficit, which indicates that Apple have incurred more cumulative losses than profits. The accumulated other comprehensive losses in this balance sheet represent losses that have not yet been realised to net income. Although, we do see a decrease in both types of losses, indicating better financial health moving forward.

References

Fernando, J. (2025). Balance Sheet: Explanation, Components, and Examples. Accessed at: https://www.investopedia.com/terms/b/balancesheet.asp

Investopedia. (2025). How Do You Read a Balance Sheet?. Accessed at: https://www.investopedia.com/articles/04/031004.asp