Balance Sheet: An Essential Tool Every Investor Must Know

What is a Balance Sheet, really?

The (Balance Sheet) is not just an office document but a snapshot of a company’s financial position at a specific point in time, showing how much assets the business holds, how much debt it owes, and the true ownership stake.

It is a technique that helps investors look beyond large numbers to understand the true financial health of a company, whether you invest in stocks, bonds, or even crypto assets.

Main Structure of the Balance Sheet

A simple formula you need to remember:

Assets = Liabilities + Equity

Why is it called a Balance Sheet? Because both sides must always be equal, like a balanced scale.

###Assets(: The resources owned by the company

Divided into 2 categories:

Current Assets - Items that can be converted into cash within 1 year, such as cash, receivables, inventory, credit cards )in the context of crypto, think of it as crypto stored in a wallet contract(

Non-current Assets - Items that take several years to sell, such as factories, land, machinery, copyrights, patents

)Liabilities###: Obligations

Current Liabilities - Due soon (within 1 year), such as trade payables, taxes payable, accrued wages

Non-current Liabilities - Long-term debts, such as long-term bank loans, long-term bonds

(Equity): The company’s ownership

This is what owners and shareholders actually receive after deducting all liabilities, consisting of:

• Shareholder’s Equity - The initial investments
• Retained Earnings (or Losses) - Profits accumulated over the years, after dividends

How to read a Balance Sheet for understanding

Step 1: Understand the basic structure

Before looking at the numbers, remember that this statement consists of three parts: Assets (Property), Liabilities (Obligations), and Equity ###True value(. When you see this balance, you’ll better understand the account.

) Step 2: Assess liquidity

Compare current assets with current liabilities. If current assets are greater, it indicates the company can meet short-term obligations. This information is important for investors as it shows the safety of their investment.

( Step 3: Analyze profitability potential

Look at equity. If retained earnings increase year over year, it shows the company is profitable. If accumulated losses rise, it’s a warning sign.

) Step 4: Compare with other companies in the same industry

The components of the Balance Sheet vary across industries, so comparing within the same industry is more meaningful.

Where to find Balance Sheet data?

Thai investors can check a company’s financial statements at Datawarehouse.dbd.go.th by going to “Company Data and Financial Statements” and entering the business name of interest.

You can view the balance sheets for different years, compare with other companies in the same sector, and analyze various financial ratios.

Cautions when reading a balance sheet

1. Past Data: The Balance Sheet shows data only on the date it was prepared, not real-time data. Significant events after that date may make the figures outdated.

2. Risk of Manipulation: Some companies may use different accounting methods to present a more favorable picture. Financial ratios might be misleading.

3. Environmental Influences: Economic conditions such as (inflation, interest rates, currency devaluation) can make figures from different years incomparable. Always consider contextual information.

4. Time Limitations: The Balance Sheet is a snapshot at a specific time and does not tell the whole story. It’s important to also study the income statement, cash flow statement, and market signals.

Summary

The Balance Sheet is a crucial tool that reveals the true state of a company by clearly showing assets, liabilities, and equity. Whether you are a manager planning strategies or an investor making decisions, understanding how to read this financial statement will help you evaluate the company’s position and potential.

Equally important, do not forget to consider other information such as the income statement, price trends, news, and market factors to get a clear picture and make better investment decisions.