Investors need to understand the balance sheet deeply – a tool for analyzing a company's financial position

Honestly, analyzing the balance sheet is a must-know before withdrawing funds to invest. If you understand the balance sheet well, you’ll know how much money the company has, how much debt it owes, and its profitability potential.

What exactly is a Balance Sheet?

Balance Sheet ( or Financial Position Statement ), also known as the Statement of Financial Position, is a financial document that records the company’s financial status at a specific point in time. It indicates how much resources (Assets) the company has and where the funding comes from (Liabilities + Equity).

Recently, the term “Balance Sheet” is increasingly called “Statement of Financial Position” because the old name doesn’t convey the full meaning, but the fundamental principles remain the same.

Basic formula to remember

Assets (Assets) = Liabilities (Liabilities) + Equity (Equity)

This equation must always be equal (hence the name “Balance”). Assets show what the company owns, while liabilities + equity show where the money comes from.

What does a balance sheet consist of?

###Assets( – Resources the company owns

Current Assets )Current Assets(

• Cash and bank deposits
• Trade receivables )Customer payments not yet received(
• Inventory
• Prepaid expenses
• Assets that can be converted into cash within 1 year

Non-current Assets )Non-current Assets(

• Land, buildings, machinery
• Vehicles
• Patents, copyrights
• Long-term investments
• Assets that take more than 1 year to sell

)Liabilities### – What the company owes

Current Liabilities (Current Liabilities)

• Trade payables (Company’s unpaid bills)
• Tax liabilities
• Short-term loans
• Payable within 1 year

Non-current Liabilities (Non-current Liabilities)

• Long-term bank loans
• Long-term bonds
• Payable after more than 1 year

(Equity) – Net assets

Net Assets = Assets – Liabilities

Includes:

• Capital from shareholders ###Initial fundraising(
• Retained earnings )Accumulated profits from various years after dividends(

Why read a balance sheet?

) 1. Analyze liquidity (Liquidity) Check if the company has enough cash to pay short-term debts

• Current Assets ÷ Current Liabilities = Current Ratio
• If over 1.5, it’s good ###means sufficient funds(

) 2. Analyze profitability Look at the amount of capital used to generate returns

• Debt-to-Equity Ratio (Debt-to-Equity Ratio) indicates how much the company relies on borrowed money
• If ratios are too high, it indicates high risk

3. Year-over-year comparison

Compare this year’s balance sheet with last year’s to observe trends

• Are assets increasing or decreasing?
• Are liabilities as expected or abnormally rising?

Two formats of balance sheets

( Accounting Format ) (T-Account Style)

• T-shape – Assets on the left, liabilities + equity on the right, easy to read

Report Format

• Top-down arrangement – Assets first, then liabilities, then equity. Used in formal financial reports.

Where to view a company’s balance sheet?

If you want to study a company’s financial position, you can visit the website Datawarehouse.dbd.go.th

Steps to view:

1. Go to Datawarehouse.dbd.go.th
2. Select “Corporate Data and Financial Statements”
3. Enter the company’s name of interest
4. Click the “Financial Data” tab
5. Choose the fiscal year and report type
6. You can compare year-over-year and industry peers as well

How to read a balance sheet effectively

Step 1: Understand the structure A balance sheet shows money, resources, and liabilities at a specific date, not throughout the year.

Step 2: Focus on key figures

• Current Assets ÷ Current Liabilities = Liquidity analysis
• Shareholders’ Equity ÷ Total Assets = Risk level (Higher is better)
• Total Liabilities ÷ Shareholders’ Equity = Leverage ###Lower is better(

Step 3: Compare over different periods See how figures change—up, down, or stable.

Step 4: Consider other information A balance sheet alone isn’t enough; review income statements, cash flow statements, and other relevant data for a complete picture.

Important warnings

) 1. The balance sheet shows past data Figures are historical (Real Time) and may not reflect current situations, especially for rapidly changing companies.

( 2. Credibility Balance sheets may be prepared to look better than reality )if accounting issues exist###. Always check other sources like audit reports from auditors.

( 3. External factors Economic conditions )Inflation, interest rates### change over time, which can make comparisons less precise.

( 4. Foreign companies May use different accounting standards, making comparisons more difficult.

Summary

A balance sheet is a crucial financial analysis tool. It tells you how much assets, liabilities, and equity a company has. For investors, a deep understanding of the balance sheet helps make more confident investment decisions.

However, don’t rely solely on the balance sheet. Study income statements, cash flows, and other data to get a complete picture and make better investment choices. In the world of investing, the more you know, the less risky it is.