Module 3 ยท Reading Financial Statements
The balance sheet shows what a company owns (assets), owes (liabilities) and the owners' stake (equity).
The balance sheet is a snapshot of a company's financial position at a point in time. Assets are what it owns; liabilities are what it owes; equity is what belongs to shareholders.
The accounting identity is simple: Assets = Liabilities + Equity. If a company owes more than it can handle, it is financially fragile.
Key things to check: how much debt it carries, how much cash it holds, and whether its assets are growing. A strong balance sheet can survive tough times.
Example: TCS
TCS has a famously strong balance sheet with little debt and large cash reserves, giving it resilience and the freedom to return cash to shareholders.
The balance sheet identity is:
Why might a company with very high debt be risky even if it is profitable right now?