How to Read a Balance Sheet

Investors and managers must understand balance sheets. Here's the simple breakdown.

Assets (what you own) = Liabilities (what you owe) + Equity (owner's stake). Current assets: cash, inventory, accounts receivable. Fixed assets: property, equipment. Current liabilities: bills due within a year. Long-term debt: loans due later. Equity: money put in plus retained earnings.

Key question: Does the company have more assets than liabilities? (positive book value). Also check current ratio (current assets/liabilities) � below 1 means potential liquidity crunch.

Balance sheets tell you a company's net worth at one point in time. Compare across years to see if they're growing equity. It's not glamorous, but it's the truth beneath the hype.