Read Financial Statements – Balance Sheets

 

How to Read Financial Statements – Focus on Balance Sheets

A simple, no-jargon guide for Moat In You readers

When you look at a company’s balance sheet, think of it as a snapshot of its financial health at a specific point in time. It follows the fundamental equation:

Assets = Liabilities + Shareholders’ Equity

Here's a breakdown of what each term means:

1. Assets

These are resources the company owns — anything that can be converted into money.

Examples:

• Current Assets (short-term, within 1 year): cash, receivables, inventory

• Non-current Assets (long-term): property, equipment, long-term investments

---

2. Liabilities

What the company owes to others.

Examples:

• Current Liabilities: bills, short-term loans, payables

• Long-Term Liabilities: bonds payable, mortgages, long-term debt

---

3. Shareholders’ Equity

This is the net worth of the company: the assets left after paying liabilities.

Includes:

• Paid-in capital

• Retained earnings (accumulated profits)

---

🏢 Example 1: Tata Consultancy Services (TCS, India)

Here’s a snapshot from TCS’s latest annual balance sheet:

Category	Amount (₹ Crores)
Current Assets	39,500
Non‑Current Assets	62,000
Total Assets	1,01,500
Current Liabilities	21,200
Long‑Term Liabilities	15,800
Total Liabilities	37,000
Shareholders' Equity	64,500

• Total Assets (1,01,500) = Liabilities (37,000) + Equity (64,500). Balanced.

• Strong equity shows a healthy financial base.

🌍 Example 2: Apple Inc. (Global Perspective)

From Apple’s FY2024 quarterly balance sheet:

Category	Amount (US$ Million)
Current Assets	152,987
Non‑Current Assets	212,000
Total Assets	364,987
Current Liabilities	176,392
Long‑Term Liabilities	131,638
Total Liabilities	308,030
Shareholders' Equity	56,957

• Notice the large equity cushion – signifies stable financial footing.
  
  

• Apple’s strong liquidity shows it can handle short-term obligations easily.

📉 Key Ratios to Watch

Learn quick metrics to assess company stability:

Ratio	Formula	Why It Matters
Current Ratio	Current Assets ÷ Current Liabilities	Ideal >1 ⇒ company can cover short-term debts
Debt-to-Equity (D/E)	Total Liabilities ÷ Equity	Lower is safer; helps measure leverage and financial risk
Asset Turnover	Revenue ÷ Total Assets	Higher ⇒ more efficient use of assets
Working Capital	Current Assets – Current Liabilities	Positive = enough liquidity to manage operations

🧭 Interpreting the Numbers

• Healthy Current Ratio (>1) ⇒ good short-term liquidity

• Balanced D/E Ratio ⇒ growth with manageable debt

• Rising Working Capital ⇒ increasing financial buffer

Apply these checks to both Indian and global companies—The principles remain the same, even if currency and scale differ.

Takeaways

1. Read the Date
   Balance sheets are a snapshot—compare multiple periods for trends.

2. Check the Equation
   Assets should equal Liabilities + Equity — any discrepancy suggests error.

3. Compare Assets vs Liabilities
   More assets and equity = stronger foundation

4. Use Ratios
   Helps simplify financial positions into clear metrics

5. Layer it with Other Statements
   Combine insights from Income Statement and Cash Flow Statement for full context

🧭 Final Thoughts from Moat In You

• Don’t get overwhelmed — start with one company and read its statements slowly.

• Focus on consistency and long-term trends, not just one quarter.

• Use these statements together to form a complete picture of a company.

“Financial statements are the story of a business — learn to read them, and you'll learn to invest better.”