PosiStep 12: Balance sheet: assets, liabilities, debt and Owes vs Owns
The P&L shows a period of trading. The balance sheet is a snapshot on one date: everything the company owns, everything it owes, and what is left for shareholders.
Assets: what the company owns
Assets are things of value the company owns. Current assets can turn into cash within a year: cash, money customers owe (receivables) and stock of goods (inventory). Non-current assets last longer: factories, machines, land, buildings and long-term investments.
Liabilities: what the company owes
Liabilities are what the company owes others. Current liabilities are due within a year, such as money owed to suppliers and short-term loans. Non-current liabilities are due later, such as long-term borrowings and lease obligations for offices and buildings.
Borrowings (debt) matter most, because interest must be paid whether business is good or bad.
Equity and book value
What remains after subtracting liabilities from assets belongs to shareholders: equity, also called net worth or book value. The basic rule is: Assets = Liabilities + Equity.
Book value per share = equity ÷ number of shares. Comparing it with the share price gives the P/B ratio (PosiStep 14).
Measuring debt: D/E and Owes vs Owns
The common measure is debt-to-equity (D/E) = borrowings ÷ equity. A D/E of 2 means the company has borrowed twice its own capital.
PositoAI also shows Owes vs Owns: everything a company owes (total liabilities) ÷ everything it owns (total assets). Below 1× it owns more than it owes; near or above 1× it owes almost as much as, or more than, it owns. Banks and lenders naturally have high figures, because borrowing and lending is their business.
Negative equity
If liabilities are larger than assets, equity is negative. This can come from years of losses (a serious warning) or from large buybacks by profitable companies (less alarming, but the company still owes more than it owns). Ratios such as P/B and D/E become hard to read in these cases.
Where PositoAI fits
The Go Deep tab shows each company's balance sheet, a breakdown of what it owns and how it is funded, and its Owes vs Owns trend. The low debt and debt-free Top 10 lists group companies by these figures.
Key terms
- Assets
- What the company owns: cash, receivables, inventory, plant, property, investments.
- Liabilities
- What the company owes: suppliers, borrowings, leases and other obligations.
- Equity (book value)
- Assets − liabilities: what belongs to shareholders.
- Debt-to-equity (D/E)
- Borrowings ÷ equity.
- Owes vs Owns
- PositoAI's figure: total liabilities ÷ total assets; below 1× it owns more than it owes.
- Book value per share
- Equity ÷ number of shares.
Try it
Made-up company Cedar Motors has total assets of ₹1,000 Cr and total liabilities of ₹600 Cr. What is its equity, and its Owes vs Owns?
Equity = ₹1,000 Cr − ₹600 Cr = ₹400 Cr. Owes vs Owns = ₹600 Cr ÷ ₹1,000 Cr = 0.6×: it owes ₹0.60 for every ₹1 it owns.
See it live on PositoAI
Open Infosys's Go Deep tab and find its total assets, total liabilities and Owes vs Owns. Then open the debt-free Top 10 list for India and see what it says about lease obligations.
What this does not tell you
A balance sheet is a snapshot on one date and can look different a month later. Book values can be far from what assets would really sell for, and some valuable things, like a brand, may barely appear at all.
Quick quiz
Which equation is always true for a balance sheet?
Everything a company owns is financed either by what it owes (liabilities) or by shareholders (equity).
Borrowings ₹300 Cr, equity ₹150 Cr. What is the D/E?
D/E = ₹300 Cr ÷ ₹150 Cr = 2: the company has borrowed twice its own capital.
An Owes vs Owns of 0.4× means:
Owes vs Owns = total liabilities ÷ total assets, so 0.4× means ₹0.40 owed per ₹1 owned.
What are current assets?
Current assets, like cash, receivables and inventory, can become cash within a year.
Why do banks have high Owes vs Owns figures?
Banks take deposits and borrow to lend, so large liabilities are normal for them.
Answer every question on this page correctly to complete this PosiStep.
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PosiCourse is for education only. It does not recommend buying or selling any share. Examples with made-up numbers are not real companies. PositoAI is for research and education only and is not investment advice.