Balance Sheet: How to Read, Components, and Example

Let's demystify one of the most important documents investors should be aware of.

By Matthew Frankel, CFP – Updated Jul 7, 2025 at 12:47 PM

Key Points

Balance sheets consist of assets, liabilities, and shareholders' equity, revealing financial health.
Shareholders' equity equals assets minus liabilities and reflects theoretical investor value if a firm closes.
Analyzing balance sheets helps investors gauge a company's financial flexibility and investment potential.

Every publicly traded company issues a series of financial statements on at least a quarterly basis. The balance sheet is perhaps the statement most indicative of a company's financial health.

A company's balance sheet contains important information about how much money the company has, how much it owes, and more. In this article, we'll discuss the basics of balance sheets, how they work, what to focus on as an investor, and a real-world example.

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Balance sheet with a fountain pen and glasses lying on top. — Image source: Getty Images.

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Balance sheets are important for investors to read because they can answer some very important questions about a company's financial health and flexibility. By knowing how to read a company's balance sheet, you can find the answers to questions such as:

How much cash does the company have available to make acquisitions or invest in growth?
How much tangible property, such as factories and machinery, does the company own?
How much debt does the company have?
What is the company's actual book value?

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An infographic explaining the balance sheet formula: Shareholder equity equals assets minus liabilities. — Image source: The Motley Fool.

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Asset

An asset is a resource used to hold or create economic value.

Noncurrent assets include things that won't be readily spendable within the next year. Tangible property, such as a factory, is the most obvious example. However, they also include equipment, long-term investments, and intellectual property.

Liabilities: Most notably, the liabilities category includes a company's debts. Like assets, liabilities are separated into current liabilities (those due within a year) and noncurrent liabilities. Debts coming due soon and accounts payable are examples of current liabilities you'll typically find on a balance sheet, while long-term debt is the most common type of noncurrent liability.

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Liability

When it comes to evaluating a business, a liability is really just a one-word description of what a company owes to other parties.

Shareholders' equity: Subtracting the company's liabilities from its assets shows its shareholders' equity. The metric itself is most useful when evaluating value investments, as opposed to growth stocks, because it shows what a business is "worth" based simply on what it owns and owes without regard to its income-generating or growth potential.

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Statement of Shareholders’ Equity

A summary of changes in a company's ownership interests, including stock issuance and earnings.

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Apple fiscal year 2023 balance sheet. — Image source: Apple.

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About the Author

Matt Frankel, CFP, is a contributing Motley Fool stock market analyst and personal finance expert covering financial stocks, REITs, SPACs, and personal finance. Prior to The Motley Fool, Matt taught high school and college mathematics. He holds a bachelor’s degree in physics from the University of South Carolina, a master’s degree in mathematics from Nova Southeastern University, and a graduate certificate in financial planning from Florida State University. He won a SABEW award for coverage of the 2017 Tax Cuts and Jobs Act. He is also regularly interviewed by Cheddar, The National Desk, and other TV networks and publications for his financial, stock market, and investing expertise.

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Matt Frankel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple. The Motley Fool has a disclosure policy.