The short answer
A balance sheet, or statement of financial position, lists what an organisation owns (assets), what it owes (liabilities) and the owners’ stake (equity) on a single date. Assets always equal liabilities plus equity. Read the current lines first: can it pay what falls due within a year?
Example Trades Ltd.
Balance Sheet
As at December 31, 2025, with comparative figures for 2024
| Note | 2025 | 2024 | |
|---|---|---|---|
| Current assets | |||
| Cash | 64,000 | 52,000 | |
| Accounts receivable1 | 182,000 | 141,000 | |
| Inventory | 58,000 | 49,000 | |
| Prepaid expenses | 6,000 | 5,000 | |
| Total current assets | 310,000 | 247,000 | |
| Equipment, net of accumulated amortization | 3 | 214,000 | 196,000 |
| Total assets | 524,000 | 443,000 | |
| Current liabilities | |||
| Accounts payable and accrued liabilities | 96,000 | 88,000 | |
| Income taxes payable | 6,000 | 4,000 | |
| Current portion of long-term debt | 4 | 30,000 | 28,000 |
| Total current liabilities | 132,000 | 120,000 | |
| Long-term debt2 | 4 | 148,000 | 158,000 |
| Total liabilities | 280,000 | 278,000 | |
| Shareholders’ equity | |||
| Share capital | 100 | 100 | |
| Retained earnings | 243,900 | 164,900 | |
| Total shareholders’ equity | 244,000 | 165,000 | |
| Total liabilities and shareholders’ equity | 524,000 | 443,000 | |
- 1Receivables grew faster than sales. Revenue rose 15%, receivables 29%. Customers are taking longer to pay, about 54 days of sales outstanding against 48 the year before.
- 2Debt split in two. $30,000 is due within a year and sits in current liabilities. The other $148,000 is long-term. Note 4 gives the rate, the security and any covenants.
What to calculate first
| Ratio | Formula | 2025 | What it says |
|---|---|---|---|
| Current ratio | Current assets ÷ current liabilities | 2.35 | Short-term assets cover short-term obligations more than twice |
| Quick ratio | (Current assets − inventory − prepaids) ÷ current liabilities | 1.86 | Still covered without selling inventory |
| Debt to equity | Total liabilities ÷ total equity | 1.15 | Creditors fund slightly more than the owners do |
There is no universal “good” value. A ratio means most when compared with the same company’s previous years, with a lender’s covenant, or with businesses of the same kind. The ratio calculator does the arithmetic from any statement.
Terms you will see
- Current means due or realisable within one year; long-term means after that.
- Net of accumulated amortization means cost less the wear recognised so far. Amortization is the Canadian word for what many other countries call depreciation.
- Retained earnings is all the profit kept in the business since it started, not cash in the bank.