Lesson 2.2 · 2 of 5 · How to read financial statements
How to read a balance sheet: assets, liabilities and equity
A balance sheet shows, on a given date, what a company owns (its assets), what it owes (its liabilities) and what is left for shareholders (equity). The rule behind it is simple: assets = liabilities + equity. The first things to check are cash against debt and what falls due within a year.
Terms in this lesson
- Balance sheet
- What the company owns, what it owes and what is left for shareholders, on a given date.
- Book value
- What would be left for shareholders after paying all debts, according to the balance sheet.
- Current ratio
- Whether the company has enough cash and quick assets to pay its bills for the next year.
- Net debt
- The company's financial debt minus the cash it holds.
What a company’s assets are
Definition
What are assets?
Everything the company owns that can bring in money: cash, receivables, stock, buildings, equipment.
Current assets turn into cash within a year: cash, short-term investments, receivables (money customers have not paid yet) and inventory. Non-current assets stay in the business for years: factories, equipment, long-term investments and the goodwill left over from acquisitions.
Apple’s assets on 27 September 2025: $359.2bn in total. Each bar shows its share of the total.
Apple’s inventory is small for a company that sells phones: $5.7bn, under 2% of its assets. Partner factories build the phones and they sell quickly. At a carmaker or a retailer, inventory is usually a much bigger slice of the balance sheet.
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Create a free accountWhat liabilities a company has
Definition
What are the liabilities on a balance sheet?
Everything the company owes: to suppliers, banks, bondholders and the taxman.
Current liabilities are due within a year: supplier invoices, tax, loans that are about to mature. Non-current liabilities are due later, such as 10-year bonds. Not all of them carry interest: suppliers do not charge it, banks and bondholders do. The interest-bearing ones are called borrowings, or financial debt.
What shareholders’ equity is
Definition
What is shareholders’ equity?
What is left for shareholders once you take every liability away from the assets.
It is also called book value. It grows with money put in by shareholders and with profit kept in the business. It shrinks with losses, dividends and share buybacks. For Apple on 27 September 2025: 359.2 - 285.5 = $73.7bn.
Apple, 27 September 2025.
What to check first on a balance sheet
- Cash against borrowingsApple had $132.4bn in cash and marketable securities (including $77.7bn of long-term securities) and $98.7bn of borrowings: its net debt was negative, by $33.8bn.
- What falls due within a yearCompare current assets with current liabilities: the current ratio. At Apple: 148.0 ÷ 165.6 = 0.89. Below 1 can be a problem at a small firm, less so at one that collects a lot of cash every month.
- How equity is changingIf it shrinks year after year because of losses, that is a bad sign. If it shrinks because of buybacks, as at Apple, the reason is different.
- Assets that are hard to valueGoodwill appears after acquisitions and can be written down suddenly if the business bought does badly. Nvidia had $20.8bn of goodwill in January 2026, against $5.2bn a year earlier.
Real case
Apple’s balance sheet on 27 September 2025
From the 10-K annual report for financial year 2025. The analysis page shows the company’s figures over several years, so you can see how they have changed.
Lessons are educational. They are not a recommendation to buy or sell. Investing involves risk and you can lose money. Sources: Apple, 10-K annual report for the financial year ended 27 September 2025 (balance sheet: assets $359,241m, liabilities $285,508m, equity $73,733m; cash flow statements for financial years 2023-2025: buybacks and dividends); Nvidia, 10-K annual report for the financial year ended 25 January 2026 (assets $206,803m, liabilities $49,510m, goodwill $20,832m).