# Balance Sheet > The balance sheet shows what a company owns, owes and the equity left for shareholders. Learn the main items, key ratios and red flags traders look for. Source: https://learn.tradelabsai.com/fundamentals/balance-sheet/ Track: Fundamental Analysis · Level: Intermediate · Updated: 2026-10-03 Publisher: TradeLabs AI (https://tradelabsai.com). Education, not financial advice. Cite as: TradeLabs Learn, "Balance Sheet", https://learn.tradelabsai.com/fundamentals/balance-sheet/ The balance sheet is a snapshot of a company's financial position at a single point in time, usually the end of a quarter or year. It lists what the company owns (assets), what it owes (liabilities) and the difference, which belongs to shareholders (equity). While the income statement shows performance over a period, the balance sheet shows financial strength: how much debt a company carries, how much cash it has and whether it can survive a downturn. ## The basic equation ``` assets = liabilities + shareholders' equity ``` The two sides always balance, hence the name. ## The main items | Section | Items | Notes | |---|---|---| | Current assets | Cash, short term investments, accounts receivable, inventory | Expected to turn into cash within a year | | Non current assets | Property, plant and equipment; intangible assets; goodwill; long term investments | Used over many years | | Current liabilities | Accounts payable, short term debt, accrued expenses, deferred revenue | Due within a year | | Non current liabilities | Long term debt, lease liabilities, pensions, deferred taxes | Due later | | Shareholders' equity | Common stock, retained earnings, treasury stock | What is left for owners. See [Debt, Cash and Shareholders' Equity](https://learn.tradelabsai.com/fundamentals/shareholders-equity/) | ## A worked example **Example: Reading a simple balance sheet** | Assets | $ millions | Liabilities and equity | $ millions | |---|---|---|---| | Cash | 200 | Accounts payable | 150 | | Receivables | 180 | Short term debt | 100 | | Inventory | 220 | Long term debt | 500 | | Property and equipment | 700 | Other liabilities | 150 | | Goodwill and intangibles | 300 | Shareholders' equity | 700 | | **Total** | **1,600** | **Total** | **1,600** | Current ratio: (200 + 180 + 220) / (150 + 100) = 2.4. Net debt: 600 minus 200 = $400 million. Debt to equity: 600 / 700 ≈ 0.86. ## Key ratios | Ratio | Formula | What it shows | |---|---|---| | Current ratio | Current assets / current liabilities | Short term liquidity | | Quick ratio | (Cash + receivables) / current liabilities | Liquidity excluding inventory | | Debt to equity | Total debt / equity | Financial leverage | | Net debt | Total debt minus cash | Debt burden after cash | | Net debt to EBITDA | Net debt / EBITDA | Years of earnings needed to repay debt. See [Operating Income, EBIT and EBITDA](https://learn.tradelabsai.com/fundamentals/operating-income-ebit-and-ebitda/) | | Book value per share | Equity / shares outstanding | Accounting value per share. See [Price to Sales and Price to Book](https://learn.tradelabsai.com/fundamentals/price-to-sales-and-price-to-book/) | ## What traders look for - **Liquidity:** enough cash and short term assets to cover obligations. See [Working Capital](https://learn.tradelabsai.com/fundamentals/working-capital/). - **Leverage:** high debt magnifies risk, especially when rates rise. See [Operating and Financial Leverage](https://learn.tradelabsai.com/fundamentals/operating-and-financial-leverage/). - **Debt maturities:** large debt coming due soon can force refinancing at higher rates. - **Asset quality:** large goodwill can be written down after poor acquisitions. See [Goodwill and Intangible Assets](https://learn.tradelabsai.com/fundamentals/goodwill-and-intangible-assets/). - **Inventory and receivables trends:** rising faster than sales can signal weak demand or collection problems. - **Off balance sheet items:** commitments disclosed only in the notes. ## Red flags | Signal | Possible problem | |---|---| | Receivables growing much faster than revenue | Aggressive revenue recognition or customers not paying | | Inventory piling up | Weak demand, future write downs | | Rising short term debt and falling cash | Liquidity stress | | Negative equity | Accumulated losses or heavy buybacks funded by debt | | Large goodwill relative to equity | Risk of impairments | ## Limits of the balance sheet - **Historical cost:** many assets are recorded at purchase price, not current value. - **Missing assets:** brands, software and employee know how built internally often do not appear. - **Snapshot timing:** companies can dress up the balance sheet at period end. ## Frequently asked questions ### What is a balance sheet? A financial statement showing a company's assets, liabilities and shareholders' equity at a specific point in time. ### Why must the balance sheet balance? Because everything a company owns is financed either by borrowing (liabilities) or by owners (equity), so assets always equal liabilities plus equity. ### What is a good current ratio? It depends on the industry, but a ratio above about 1.0 to 1.5 is often seen as comfortable; very high ratios can mean idle cash. Next, follow the money in the [Cash Flow Statement](https://learn.tradelabsai.com/fundamentals/cash-flow-statement/). ## Continue learning - Next lesson: [Cash Flow Statement](https://learn.tradelabsai.com/fundamentals/cash-flow-statement/) - Previous lesson: [Income Statement](https://learn.tradelabsai.com/fundamentals/income-statement/) - Related: [Income Statement](https://learn.tradelabsai.com/fundamentals/income-statement/): The income statement shows a company's revenue, costs and profit over a period. Learn each line from revenue to EPS, a worked example and what traders watch. - Related: [Debt, Cash and Shareholders' Equity](https://learn.tradelabsai.com/fundamentals/shareholders-equity/): Shareholders' equity is assets minus liabilities, the book value owned by shareholders. Learn its parts, how buybacks change it and why it can be negative. - Related: [Working Capital](https://learn.tradelabsai.com/fundamentals/working-capital/): Working capital is current assets minus current liabilities. Learn how receivables, inventory and payables affect cash, the cash conversion cycle and warning signs. - Related: [Goodwill and Intangible Assets](https://learn.tradelabsai.com/fundamentals/goodwill-and-intangible-assets/): Goodwill arises when a buyer pays more than an acquisition's net assets; intangibles include brands and patents. Learn how they are recorded and impaired. - Related: [Operating and Financial Leverage](https://learn.tradelabsai.com/fundamentals/operating-and-financial-leverage/): Operating leverage comes from fixed costs; financial leverage comes from debt. Learn how each magnifies profit swings, the key formulas and what they mean for risk. - Related: [Cash Flow Statement](https://learn.tradelabsai.com/fundamentals/cash-flow-statement/): The cash flow statement shows where a company's cash came from and where it went. Learn the three sections, how to read them and why cash flow can reveal problems.