S2 E6 : HOW TO READ A COMPANY'S BALANCE SHEET (SIMPLE WAY)
🏫 Imagine This:
You’re checking a company’s report.
It says:
Assets: ₹10,000 crore
Liabilities: ₹6,000 crore
Equity: ₹4,000 crore
You blink.
“What does this even mean?” 🤷♂️
Let’s make it super simple.
A company’s Balance Sheet is like a report card showing 3 things:
📊 1. ASSETS = What the Company Owns
Things the company has or uses to run its business.
🧠 Example (Tata Motors):
- Cash in bank 💰
- Vehicles it makes 🚗
- Buildings, land 🏭
- Machines, computers 🖥️
- Inventory (cars not sold yet) 🚙
📦 Think of assets as: "Good things that bring value."
💳 2. LIABILITIES = What the Company Owes
Money the company has to repay.
🧠 Example:
- Loans taken from banks
- Salaries it owes employees
- Bills from suppliers
- Taxes not paid yet
📦 Liabilities = Company’s to-do list of payments
🧍♂️ 3. EQUITY = What the Owners Actually Own
Also called “Shareholder’s Equity”
This is the leftover amount after paying all debts.
🧠 Simple Formula:
Equity = Assets - Liabilities
📦 This is the real value you own as an investor.
📘 A Simple Analogy
Let’s say you are a company:
- You have ₹1,00,000 in your account
- You owe ₹40,000 on credit card
- Then your equity is ₹60,000
Just like that, a company has:
💰 Assets (money, buildings, machines)
🧾 Liabilities (loans, payments)
🪙 Equity (real owner value)
✅ What You Should Check as a Beginner Investor:
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Is the company drowning in debt?
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If Liabilities are more than Assets, 🚨 red flag!
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Does the Equity keep growing every year?
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Good sign. It means the company is building wealth.
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Check the Debt-to-Equity ratio
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We already learned this!
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Less than 1 is safer for long-term investing
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Compare across years
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Look at the balance sheet for last 3–5 years
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Steady growth = 🔥
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📌 Real Example: Infosys (Numbers are simplified)
💼 Total Assets
→ ₹1,00,000 crore
📉 Total Liabilities
→ ₹25,000 crore
👥 Shareholder’s Equity
→ ₹75,000 crore
👉 Remember: Assets = Liabilities + Equity
📈 Strong balance sheet — low debt, high equity = solid base for investment.
🎯 Final Tip
Balance Sheet shows the financial strength of a company.
If it has:
✅ More assets than liabilities
✅ Low debt
✅ Growing equity
…it’s like a student with great grades and no bad habits.
A good bet for your long-term money.