For investors, reading a balance sheet is like looking under the hood of a business. It reveals not only the company’s financial health but also its potential for growth, profitability, and resilience in various economic conditions. A balance sheet provides insights into the value of a company’s assets, its liabilities, and shareholders’ equity, allowing investors to evaluate risk, return, and alignment with their investment goals.
In this guide, we’ll dive into how to interpret the components of a balance sheet from an investor’s perspective, covering key metrics, ratios, and red flags to consider.
The Balance Sheet Structure: 101
A balance sheet is structured into three primary sections:
- Assets: What the company owns.
