📊How to read a balance sheet — step-by-step
How to read a balance sheet
The balance sheet is one of three key financial statements (with the income statement and cash flow statement). It shows what the company owns, owes, and the equity remaining.
The fundamental equation
Assets = Liabilities + Equity
Must always balance.
3 main sections
1. Assets — what the company owns
- Current assets: cash, receivables, inventory (<12 months)
- Long-term assets: buildings, equipment, software, goodwill (>12 months)
2. Liabilities — what the company owes
- Current: payables, wages, taxes (<12 months)
- Long-term: bank loans, bonds (>12 months)
3. Equity — what remains for shareholders
= Assets − LiabilitiesKey metrics
- Current Ratio = Current Assets / Current Liabilities. >1.5 = healthy liquidity.
- Debt-to-Equity = Total Liabilities / Equity. <1.0 = low leverage.
- ROE = Net Income / Equity × 100. >15% = efficient capital use.
Where to find this in QMA
QMA's EQS pillar integrates balance-sheet quality including Sloan accrual ratio and cash flow quality. On every stock detail page under Quality section.
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Create a free accountContent created by AI in collaboration with Jaroslav Vojtášek. Not investment advice. The author may hold the stocks mentioned. Investing involves risk of loss.
Operator: Jaroslav Vojtášek, Company ID (IČO) 48783447.