What Is a Balance Sheet and What Does It Show? A Real Example
Fundai Education Team · · 8 min read
Learn the balance sheet items and how they differ from the income statement, read a company's financial position at a specific date, and practise with a real example.
In answer to what a balance sheet is, the balance sheet, or statement of financial position, is a report that shows a company's assets, liabilities and equity at a specific date, and in it total assets always equal total liabilities plus equity. By reading this statement, you examine the mix of resources and obligations the company has recorded; for a proper comparison, you must also identify the date, the presentation unit, and whether the report is separate or consolidated.
What is a balance sheet, and how does it differ from an income statement?
The balance sheet shows financial position at a single date; the income statement reports the revenues, expenses, and profit or loss of a period. To answer the question "what is a balance sheet", you need to understand the difference between an account balance on the reporting date and activity over the period. Read the date at the top of the statement: cash or receivables relate to that specific day, not to the total activity of the year.
The basic accounting equation states that total assets equal total liabilities plus equity. Assets show the company's recorded economic resources; liabilities and equity identify the financial structure corresponding to those resources. Accounts being in balance does not mean the nature of the items is the same: trade receivables differ from cash, and trade payables are not the same as financial facilities.
What is the difference between a balance sheet and an income statement?
The main difference is reporting position at a date versus reporting performance over a period. To answer "what is a balance sheet and what is it used for", you need to know which question to answer with which statement: read the mix of resources and obligations in the balance sheet, and the revenues, expenses, and profit of the period in the income statement. The cash flow statement also reports the period's cash receipts and payments; therefore, net profit is not equal to cash at the end of the period. When analyzing, define your question clearly so that you do not substitute the balance of one account for the performance of the whole period.
Step two: What items does the balance sheet include?
The balance sheet consists of assets, liabilities and equity; assets and liabilities are split into current and non-current. After checking the date, read the composition of each section. Total current assets alone do not show how much of the company's resources is cash now, or how long you must wait to receive it.
Current assets include cash or an asset that is expected to be converted into cash, sold or consumed in the normal operating cycle or within twelve months after the balance sheet date; all other assets are non-current. In this section, review cash balances, receivables and inventory of materials and goods separately. The label "current" does not mean all items turn into cash at the same speed.
Current liabilities are liabilities that are expected to be settled in the normal operating cycle or within twelve months after the balance sheet date; all other liabilities are non-current. Total liabilities are not just loans; they also include payables, taxes and dividends payable, advance receipts, provisions and financial facilities. Equity is the difference between total assets and total liabilities; capital, reserves and retained earnings are among its components.
Net working capital is the difference between current assets and current liabilities. To examine the financial structure, read the debt-to-assets ratio as a percentage and the debt-to-equity ratio in times. The calculations below link these same items at one date and on one basis.
Net working capital (billion tomans)
Debt-to-assets ratio (percent)
Debt-to-equity ratio (times)
Positive working capital only shows the excess of total current assets over current liabilities. To gauge the cash available, you must examine the composition of current assets; receivables and inventory are not cash.
Step 3: Where is the balance sheet on Codal, and how do you check that it balances?
You can find the balance sheet in the statement of financial position section of issuers' annual and interim reports on the Codal system. Check the report title, date, presentation unit and audit status before taking figures from it. Whether a report is annual or interim relates to the reporting period; rials, tomans or dollars are presentation units. An annual title alone also does not mean the statement is audited.
Select the report you want Search for the company's symbol and open the financial statement notice for the date you need. Read the statement's title and determine whether it is separate or consolidated.
Follow the items in Fundai On the company page, open the balance sheet report. We organise Codal data and make it comparable; first read the current and non-current components, then move on to the totals.
Check the balance Match total assets against total liabilities plus equity. To investigate a small difference in rounded figures, refer to the report's full-precision figures.
| Row (billion tomans) | Fiscal year 1403/12 | Fiscal year 1404/12 |
|---|---|---|
| Property, plant and equipment | 6,105.6 | 19,964.1 |
| Intangible assets | 11.2 | 12.4 |
| Long-term receivables | 264.7 | 370.7 |
| Other assets | 20.1 | 85.6 |
| Total non-current assets | 54,567.6 | 68,673.9 |
| Orders and prepayments | 1,925.6 | 1,509.7 |
| Inventory of materials and goods | 4,380.3 | 5,254.8 |
| Trade and other receivables | 34,743.4 | 66,742.8 |
| Short-term investments | 4,725.4 | 4,694.3 |
| Cash balance | 3,574.7 | 8,798.7 |
| Total current assets | 49,349.2 | 87,000.3 |
| Total assets | 103,916.9 | 155,674.2 |
| Capital | 47,604.9 | 47,604.9 |
| Legal reserve | 3,181.0 | 4,496.8 |
| Retained earnings (accumulated losses) | 22,537.8 | 37,205.0 |
| Total equity | 73,323.7 | 89,306.8 |
| Provision for employee end-of-service benefits | 345.0 | 1,501.1 |
| Total non-current liabilities | 904.0 | 1,933.8 |
Step 4: What Is a Consolidated Balance Sheet and How Is It Used on the Stock Exchange?
A consolidated balance sheet shows the financial position of a parent company and the subsidiaries it controls as a single economic entity. By contrast, a separate financial statement reports the position of the parent company itself, and its investments in subsidiaries are reflected in the related line items. When reading a balance sheet on the stock exchange, the symbol name alone does not tell you the basis of the report; read the title of the statement.
To compare two dates or two companies, keep the reporting scope constant. If you take assets from the consolidated statement and liabilities from the separate statement, the result of the calculation belongs to neither statement. Using the same currency unit also does not remove the difference in scope; before comparing, note the basis and date of each set of figures.
At Fundai we display the figures from the parent company's separate financial statements; we do not have a consolidated figure in the data for this article. Do not conclude from the absence of a statement in the dataset in front of you that no report exists for the company. To continue your analysis, read the trend on the same basis on which you calculated the line items and ratios.
| Fiscal year ended | Total assets (billion tomans) | Total liabilities (billion tomans) | Total equity (billion tomans) |
|---|---|---|---|
| 1400/12 | 76,572.0 | 11,776.0 | 64,796.0 |
| 1401/12 | 81,560.1 | 15,093.8 | 66,466.3 |
| 1402/12 | 86,983.6 | 19,555.2 | 67,428.4 |
| 1403/12 | 103,916.9 | 30,593.1 | 73,323.7 |
| 1404/12 | 155,674.2 | 66,367.5 | 89,306.8 |
Step 5: What does the balance sheet show, and how is it evaluated?
The balance sheet shows the composition of assets, obligations and equity; evaluating it requires examining its components and making like-for-like comparisons. In analysis, the practical use of answering "what is a balance sheet" is to connect financial structure ratios to the line items that make them up. A difference between a company's ratio and the industry's is a reason to examine the composition of accounts; on its own, it does not pass judgment on the quality of the company.
| Financial indicator | Pars Petrochemical | Whole chemical products industry |
|---|---|---|
| Debt-to-assets ratio | 40.1% | 65.8% |
| Debt-to-equity ratio | 0.67 times | 1.92 times |
| Price-to-book ratio (P/B) | 2.04 times | 5.46 times |
The price-to-book ratio (P/B) at Fundai is market capitalization divided by total equity in the latest balance sheet. We take price and share count market data from the Tehran Securities Exchange Technology Management Co. website (TSETMC); keep the market date separate from the date of the base statement. The practical outcome of reading a balance sheet is to connect each ratio to the accounts that make it up: identify which assets lie behind total assets and which obligations make up total debt. Then, for a question about performance or cash, refer to the relevant statement. A past figure is no guarantee of the future.
What is a balance sheet and what information does it give an investor?
The balance sheet, or statement of financial position, shows a company's assets, liabilities and equity at a specific date. By examining the components of this statement, you can read the composition of the company's recorded assets and obligations; total assets alone do not indicate the amount of cash available.
What is the difference between the balance sheet and the income statement?
The balance sheet reports account balances at a single date, whereas the income statement shows the revenues, expenses and profit or loss of a period. The cash balance at period end in the balance sheet is not the same as the period's net profit; to examine cash receipts and payments, you need to read the cash flow statement.
What is a balance sheet and why don't total assets equal liabilities?
According to the fundamental accounting equation, total assets equal the sum of liabilities and equity, not liabilities alone. Equity is the difference between total assets and total liabilities, and capital, reserves and retained earnings are among its components.
Where do we start to read a balance sheet on Fundai?
On the Pars Petrochemical page, open the balance sheet report and first check the date, the display unit and the separate basis of the statement. Then read receivables, inventory and cash separately, and match the debt ratios against the line items of the same date. At Fundai, we organize financial statement data and make it comparable; to learn how to use the tools, read the user guide.
#Fundamental Analysis #Balance Sheet #Financial Statements #Codal