To read a balance sheet well, you group its lines by timing. Some items will turn into cash or be paid within a year; others stretch much further out. This split is the key to judging short-term strength.
Current versus non-current
| Group | Meaning | Examples |
|---|---|---|
| Current assets | Will be used or converted to cash within a year | Cash, inventory, receivables |
| Non-current assets | Held for the long term | Property, plant, machinery |
| Current liabilities | Must be paid within a year | Payables, short-term loans |
| Non-current liabilities | Due after more than a year | Long-term loans, bonds |
Timing, not size, is what separates the groups.
The difference between current assets and current liabilities is working capital. It is a rough measure of whether a company can meet its near-term bills.
- Positive working capital suggests short-term bills can be covered.
- Negative working capital can be a warning sign, though some strong businesses run this way on purpose.
- Large inventory that is not selling can quietly tie up cash.
Equity tells you the owners' stake
Equity has three common parts: share capital (money originally raised from shareholders), reserves (amounts set aside over time) and retained earnings (past profits kept in the business). Together they are the shareholders' claim.
Balance sheet builder
Assets must always equal liabilities plus equity. Move the sliders and try to keep it balanced.
Assets
Liabilities & equity
Total assets
₹1,000 Cr
Liabilities + equity
₹1,000 Cr
Balanced
✓ Balanced
Balanced
Equity = Assets − Liabilities
This is the book value of the company — what would be left for owners if debts were cleared.