FINANCIAR

How to read a balance sheet — five questions for a single page

olivLaw Psychohistory2 November 2026

What a balance sheet is

A balance sheet shows, at a fixed date, what a company holds and how it paid for those things. The basic equation has no exceptions: assets = liabilities + equity. Assets are what the company owns or controls. Liabilities are what it must pay to others. Equity is what would remain for the owners once all the liabilities were paid, at book values.

Being a photograph, the balance sheet does not say what happened during the year. That is what the income statement and the cash flow statement are for. Three documents, one company: read together, they check one another.

What it looks like in Romania

For companies applying national rules, the format is in Order 1802/2014, point 132. The order runs from what is hard to turn into money towards what is immediately available: A. Fixed assets (intangible, tangible, financial); B. Current assets (inventories, receivables, short-term investments, cash and bank accounts); C. Prepaid expenses; D. Liabilities due within one year; E. Net current assets; G. Liabilities due after more than one year; H. Provisions; I. Deferred income; J. Equity. Smaller entities may use a shortened balance sheet (point 451).

Companies listed on a regulated market report under IFRS, through Order 2844/2016, in a format close to the international one. There, IAS 1 draws the same 12-month line between “current” and “non-current”. From 2027, IFRS 18 replaces IAS 1 as the presentation standard, so financial statements will look partly different. Banks and insurers have structures of their own: at a bank, customer deposits are liabilities, and the questions below do not apply in the same way.

A real example: Coca-Cola, 31 December 2025

The figures come from the 10-K annual report filed with the SEC, in millions of dollars. We chose a well-known firm because the document is public and easy to check; the choice says nothing about the value of the share.

Item	31 Dec 2025	31 Dec 2024
Cash and short-term investments	13,872	12,848
Trade receivables	3,038	3,569
Inventories	4,425	4,728
Assets held for sale	5,342	131
Total current assets	31,044	25,997
Goodwill	15,491	18,139
Trademarks with indefinite lives	12,531	13,301
Total assets	104,816	100,549
Accounts payable and accrued expenses	14,813	21,712
Total current liabilities	21,281	25,249
Long-term debt	42,119	42,375
Total equity	34,275	26,372

The table keeps only the lines used below, so it does not add up by itself; the totals are those in the report.

The five questions

1. Can it pay what it owes in the next year?

Compare current assets with current liabilities: 31,044 / 21,281 = 1.46 at the end of 2025, against 1.03 a year earlier. Then look inside. Part of the rise comes from assets held for sale; without them and the related liabilities (2,570), the ratio is 1.37. There is no universal good threshold: a company that collects quickly and pays suppliers late can run well on a low ratio.

2. How much is funded by borrowing?

Add up the interest-bearing debt: 1,551 of short-term loans, 1,822 of current maturities and 42,119 of long-term debt, 45,492 in all. Against equity, that is 1.33. Subtracting cash and short-term investments, net debt is 31,620. Always compare with firms in the same sector and with the same firm's earlier years.

3. How much of the assets is hard to sell or verify?

Goodwill arises when a company buys another for more than the fair value of its net assets. Together with trademarks it reaches 28,022, which is 26.7% of assets and 81.8% of equity. That is not a bad sign in itself, but these values do not pay invoices and can be impaired.

4. Are inventories and receivables growing faster than sales?

If so, the company may be selling on ever longer credit or making what does not sell. In the example both fell in 2025, but that is not necessarily a business trend: read the notes, because reclassifications to assets held for sale can move amounts from one line to another.

The simplified route from a sale to equity. Each box corresponds to a line in the balance sheet or the income statement.

5. Does the profit reach the bank?

Here the balance sheet is read beside the cash flows. In 2025 Coca-Cola reported consolidated net income of 13,137 and operating cash flow of 7,408; the line explaining most of the gap is the change in operating assets and liabilities, −7,208. In the same balance sheet, accounts payable and accrued expenses fell by 6,899. One year proves nothing; a gap that recurs deserves an explanation. Sloan (1996) showed that the part of earnings coming from accruals, not cash, persists less than the cash part, and that prices seem not to take full account of this.

Common traps

The date of the photograph. A seasonal firm looks different on 31 December than at its peak.
Low equity does not automatically mean a weak firm. At Coca-Cola, repurchased shares appear as minus 56,423, which reduces book equity.
Liabilities outside the obvious lines. Provisions and commitments in the notes can matter as much as loans.
Group or single company. The consolidated and individual balance sheets can tell different stories.

Where to find balance sheets

Company	Where to look	Which documents
Companies in Romania	Ministry of Finance, search by tax ID	Balance sheet indicators
Issuer on the Bucharest Stock Exchange	bvb.ro and the issuer's website	Annual report, notes, auditor's report
US company	SEC EDGAR	Forms 10-K and 10-Q

This text explains a way of reading. It evaluates no company and is not investment advice.

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