The balance sheet: what a company owns and whom it owes

The balance sheet answers the question of where a company's money came from and what it had turned into as of a specific date. On the left, under assets, is what the money has been put into; on the right, under equity and liabilities, is whose money it is: the owners' or the creditors'. That is why the two sides are equal neither by lucky coincidence nor because the accountant "made it fit": it is the very same sum viewed from different sides. What the reader learns from the balance sheet is not "how much the company is worth" but how far its property has been paid for with other people's money and how soon that money will have to be returned.

Why assets always equal equity and liabilities

Every transaction is recorded both as a source of funds and as a use of them. The company takes out a loan: cash is added on the asset side, and an obligation appears on the other side. It buys a machine tool with that money: cash on the asset side goes down, property, plant and equipment go up, and the financing side does not move at all. It earns a profit and does not distribute it: retained earnings within equity grow, while cash, inventories or receivables settle on the asset side.

A practical conclusion follows from this: the equality itself carries no information. The structure is what is informative. If assets have grown, there is always an answer to the question "at whose expense", and that answer is found on the financing side.

Assets: not "property" but money put to work

Assets are ordered by how quickly they turn back into cash. The non-current part is what works for a long time: property, plant and equipment, intangible assets, goodwill, long-term financial investments, including stakes in associated companies. The current part is inventories, accounts receivable, short-term investments and cash.

Two lines call for particular caution. Goodwill is not property but the difference between the price paid for an acquired business and the value of its net assets; goodwill cannot be sold separately, but it can very well be impaired on revaluation. Accounts receivable are money the company does not yet have; when they grow while revenue stands still, it means the product is being shipped and payment is being put off.

The financing side: equity and liabilities

This side is divided on the principle of "whose it is and when it must be returned". Equity (share capital, additional paid-in capital, reserve capital, retained earnings) is not subject to repayment; the owners get their due through dividends and growth in the value of their stake. Liabilities do have to be repaid, and here the maturity matters more than the amount: long-term debt buys time, while short-term debt demands either cash or a new loan.

That is why short-term debt used to finance long-lived assets is a story in its own right. The company builds a plant with money that has to be handed back in the next reporting period, and it lives from refinancing to refinancing. It is also useful here to understand how credit lines are structured: part of the debt burden may be undrawn and yet already cost money, as explained in detail in the piece on the revolving credit line.

Retained earnings are the source of dividends but not a guarantee of them: a company can distribute only what is backed by cash or by an unused credit limit. The nearest declared payouts on Russian securities: {{dividend_calendar|limit=5}}.

What the balance sheet leaves out and where it is crude

The balance sheet is silent on how much money actually passed through the company: that is the cash flow statement. It is silent on how much was earned: that is the income statement. It does not show the market value of most assets: property, plant and equipment are carried at historical cost less depreciation, and a facility built long ago may be on the books at next to nothing. The opposite error also occurs: a revalued asset inflates both equity and the balance sheet total.

It is worth checking separately whose statements you are looking at. The consolidated balance sheet of a group includes the assets and debts of its subsidiaries, whereas the statements of an individual legal entity include only its own; for a holding and its management company the picture may differ fundamentally. A short definition of the concept itself is given in the glossary entry balance sheet.

How to read it step by step

Step 1: check the share of equity in total equity and liabilities. This is the answer to the question of how far the business belongs to its owners and how far to its creditors.

Step 2: compare maturities. Current assets against short-term liabilities: this is how to check what the company will use to settle its nearest obligations.

Step 3: look at what has changed from date to date and at whose expense. Asset growth against a background of rising debt and unchanged equity is not development but borrowing.

Step 4: move on to the results. The balance sheet provides the base on which returns are calculated; exactly how is covered in the piece on profitability.

Where to find the data

The published reporting forms of Russian issuers are collected in the financial reports section, and the securities themselves in the stocks section. The instrument card {{instrument:SBER}} brings balance sheet and income figures together into market multiples, for example 3,77. The values are deliberately not given here as text: the platform fills them in from the database at the moment of reading, whereas in an article they would be out of date by the next reporting period.