What does a balance sheet mean? You should know what it includes.

If you want it simply, the Balance Sheet is a financial snapshot of a company taken at a specific point in time. It shows how much resources the company has—cash, land, machinery, or other assets—and where the money came from, such as loans or owner’s equity. This information helps investors and business owners clearly understand the financial health of the enterprise.

Basic Principle: Assets must equal Liabilities + Owner’s Equity

The reason it’s called a “Balance Sheet” is because both sides of the equation must always balance:

Assets = Liabilities + Owner’s Equity

This is a fundamental accounting truth that never changes. Companies use resources from two sources: borrowed funds (Liabilities) and owner’s capital (Owner’s Equity). Therefore, both must sum up to the total assets owned by the company.

What does the Balance Sheet consist of?

1. Assets: Resources that generate income

Assets are what the company owns or controls, divided into two groups based on how quickly they can be converted into cash:

Current Assets - Highly liquid, can be turned into cash within a year, such as cash in bank accounts, accounts receivable from sales, inventory, or prepaid expenses.

Non-current Assets - Take longer to sell, such as hotels, factories, land, machinery, trucks, or long-term investments, patents, copyrights.

2. Liabilities: Obligations to pay back

Liabilities are amounts owed to external parties, divided by time frame:

Current Liabilities - Due within 1 year, such as trade payables (amount owed to suppliers) or short-term loans.

Non-current Liabilities - Payable over the long term, such as long-term bank loans or bonds.

3. Owner’s Equity: Net assets

Owner’s equity is essentially the residual interest of the owner in the company, calculated as total assets minus total liabilities. It includes two parts:

Shareholder’s Capital - The initial investment made into the business.

Retained Earnings - Profits earned over the years that are not distributed as dividends, or if there’s a loss, it’s reported as accumulated deficit.

Why is it important to understand the Balance Sheet?

Investors use the balance sheet to make decisions: Does the company have enough liquidity to pay debts on time? Are retained earnings growing? Are accounts payable increasing or decreasing compared to last year?

Managers use it to assess whether the business is strong or weak, to plan debt reduction or new asset investments.

Business owners look at how much they own in the company and whether that amount has increased or decreased.

How to read a Thai Balance Sheet

Companies listed in Thailand are required to report financial statements to Datawarehouse.dbd.go.th. Investors can search by company name, select the financial data tab, view changes over multiple years, and compare with other industry companies.

Two formats of presenting the Balance Sheet

T-Shape Format - Assets on the left, liabilities + owner’s equity on the right, resembling the letter T. It’s popular because it’s easy to see.

Report Format - Starts with assets, then liabilities, then owner’s equity, reading from top to bottom. Used in annual reports.

Regardless of presentation, the fundamental equation remains: Assets = Liabilities + Owner’s Equity

How to interpret the Balance Sheet for benefits

Step 1: Get familiar with each part clearly. Assets are what the company owns; liabilities are what it owes; owner’s equity is what remains.

Step 2: Assess liquidity: Current assets divided by current liabilities. The higher, the better—indicating the company can meet short-term obligations.

Step 3: Look at trends: Compare this year’s balance sheet with last year’s. Has cash increased or decreased? What about liabilities and owner’s equity?

Step 4: Compare with other companies: What is the debt-to-equity ratio compared to competitors?

Important cautions

The balance sheet shows the status as of the date it was prepared, not real-time. If there are significant changes after that date, the data may be outdated.

There may be errors or adjustments to make the figures look better, so don’t rely solely on the numbers—review critically.

Economic conditions, inflation, interest rates, and exchange rates all affect the figures. Always consider the economic context at the time.

Summary

What does the Balance Sheet include? - Assets (What the company owns), liabilities (What the company owes), and owner’s equity (What is retained for the owner). These three parts are connected by the equation: Assets = Liabilities + Owner’s Equity.

Investors, managers, and business owners use the balance sheet to make decisions. Some want to know if the business is strong enough to borrow; others want to see if investing here is worthwhile. Understanding this structure and the basic equation is fundamental.

However, remember that numbers alone are not enough. One must also consider market conditions, growth potential, product quality, or even the management team to make informed investment decisions.