Business
What is a balance sheet? A 5-minute explainer
Assets = Liabilities + Equity. The fundamental accounting identity that powers every public company analysis.
The accounting identity
Assets = Liabilities + Equity
This is true at any instant. Always.
Assets
Things the company owns: cash, receivables, inventory, plants, intangibles.
Liabilities
Things the company owes: payables, debt, deferred revenue.
Equity
Owner’s residual claim: paid-in capital, retained earnings, accumulated other comprehensive income.
Why investors care
A strong balance sheet (low debt, high cash, growing equity) signals resilience. A weak balance sheet predicts dilution or distress.
Quick ratios to check
- Current ratio = Current assets / current liabilities (>1.5 is healthy)
- Debt-to-equity = Total debt / total equity (<1.0 is typically safe)
- ROE = Net income / equity (>15% is good)
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