The balance sheet
What it shows: a SNAPSHOT at one moment. Not a period — a date.
The equation that must hold: Assets = Liabilities + Equity. Everything a company owns was funded either by borrowing or by owners. There is no third source.
How to read it quickly:
• Current assets vs current liabilities — can they pay next year's bills? That ratio is liquidity.
• Debt vs equity — how much of the business belongs to lenders
• Goodwill — what was overpaid in acquisitions. Large goodwill is a future writedown risk.
• Retained earnings — cumulative profit never paid out
The trap: book value is historical cost, not market value. A company can carry property at what it paid decades ago.
Chart: the identity that always holds.