The balance-sheet equation
Assets = liabilities + equity. A balance sheet describes financial position at a reporting date; it is not a measure of a company’s market value or a prediction of future returns.
A hypothetical example
Example Company has cash of ₹20 lakh, receivables of ₹30 lakh, inventory of ₹25 lakh and equipment of ₹125 lakh. Total assets are ₹200 lakh. If liabilities are ₹80 lakh, accounting equity is ₹120 lakh. These invented figures do not describe a listed security.
Read the notes alongside the totals
Current and non-current classifications, receivable ageing, inventory methods, debt maturity, lease obligations, guarantees and related-party balances can affect interpretation. Consolidated accounts and standalone accounts describe different scopes.
Comparisons and limitations
Check the same reporting date and currency before comparing records. Accounting values may differ from realisable values. A ratio above or below a simple threshold does not establish financial safety, undervaluation or investment suitability.