Balance Sheet and Financial Position You Need to Know for Investors

If you are an investor or a business executive, the term “balance” in the context of finance is not just its literal meaning, but reflects the balance between what the company owns and what it owes. In Thai, this is called Financial Position Statement or traditionally known as Balance Sheet (Balance Sheet)

Why is the Financial Position Statement important for investment decisions?

Suppose you are considering investing in a company or lending money. The first thing to look at is this document. It reveals the true state of the company’s financial position at that moment, whether the company is strong or in trouble.

The financial position statement helps you:

• Assess the company’s ability to repay debts
• Measure the risk level of the investment
• Compare with other companies in the same industry
• Track financial changes over the years

Basic equation to remember: the balance sheet must be balanced

Assets = Liabilities + Shareholders’ Equity

This is the core of the entire balance sheet. The reason it’s called “balance” is because this equation must always balance: left equals right. First, imagine:

• Assets = what the company owns (cash, inventory, machinery, receivables)
• Liabilities = what the company owes (creditors, loans, taxes payable)
• Shareholders’ Equity = what remains for the owners (capital + retained earnings)

Main components of the financial position statement

1. Assets: resources that generate income

Assets are divided into two types based on how quickly they can be converted into cash:

Current Assets (Current Assets) – can be converted into cash within a year

• Cash and deposits
• Trade receivables (not yet collected)
• Inventory
• Prepaid expenses

Non-Current Assets (Non-Current Assets) – take longer to sell

• Land, buildings, machinery
• Vehicles
• Long-term investments
• Rights, copyrights, franchises

2. Liabilities: obligations to be paid back

Liabilities are also divided into two groups based on the repayment period:

Current Liabilities (Current Liabilities) – payable within a year

• Trade payables
• Portion of long-term loans due this year
• Taxes payable
• Short-term grants

Non-Current Liabilities (Non-Current Liabilities) – payable beyond this year

• Long-term bank loans
• Long-term bonds
• Lease agreements

3. Shareholders’ Equity: capital and retained earnings

This is the true part of the company’s owners.

Share capital – funds contributed from the start

Retained earnings (or losses) – accumulated results of operations

• Profits each year not paid as dividends
• Accumulated losses (if any)

Methods of preparing a balance sheet: two common formats

Method 1: Accounting Format (Accounting Form)

This is a T-shaped format you might have seen before.

The left side shows Assets, the right side shows Liabilities + Shareholders’ Equity.

Steps to prepare:

1. Write a header with 3 lines: company name, “Balance Sheet”, date of preparation
2. On the left: list all assets and total them
3. On the right: list liabilities + shareholders’ equity and total them
4. Ensure both sides are equal

Method 2: Report Format (Report Form)

This format arranges items from top to bottom, suitable for formal reports.

Steps to prepare:

1. Header with 3 lines: same as the accounting format
2. First section: show all “Assets” and total
3. Second section: show all “Liabilities”
4. Third section: show all “Shareholders’ Equity”
5. Sum of liabilities + shareholders’ equity equals assets

Why the name changed to “Statement of Financial Position”

Originally called “Balance Sheet” because it balances, but that name doesn’t really tell what it does.

Internationally, it changed to “Statement of Financial Position” to reflect its true purpose: to show the financial standing.

Thailand also adopted the name “Financial Position Statement” to align with international standards.

How to analyze the financial position statement

Step 1: Get an overview

When opening the balance sheet, look at the total numbers of assets, liabilities, and shareholders’ equity. You immediately get a basic idea of the company’s size.

Step 2: Analyze liquidity

Can the company pay its debts? Check the liquidity ratio:

Current Ratio = Current Assets ÷ Current Liabilities

• 1.5: safe

• < 1: high risk

Step 3: Analyze profitability capacity

How much shareholders’ equity? Shareholders’ equity indicates how much the owner has truly invested in the business. A larger equity suggests the company is less encumbered.

Step 4: Compare with previous years

See how the figures have changed:

• Have assets increased or decreased?
• How have liabilities changed?
• Has shareholders’ equity grown from retained earnings?

Where to find the financial position statement

To check the balance sheet of Thai companies, you can visit Datawarehouse.dbd.go.th

How to do it:

1. Go to Datawarehouse.dbd.go.th
2. Select “Company Data and Financial Statements”
3. Enter the company name
4. Click on the “Financial Data” tab
5. View the income statement, financial ratios, year-over-year comparisons, and industry comparisons

Important cautions when reading a balance sheet

1. Data is historical

The balance sheet shows the position on a specific date, not real-time data. If the company has significant news after that date, the figures may not reflect the current reality.

2. Reliability of data

Financial statements may contain errors or may be manipulated to look better. Cross-check with the income statement and the auditor’s report.

3. Changes in economic context

Inflation, interest rate changes, currency depreciation—all affect the figures. Consider the economic environment at that time.

4. Must be viewed together with other documents

Don’t rely solely on the balance sheet. Review the income statement, cash flow statement, and management commentary.

Summary: How important is the balance sheet?

The Financial Position Statement or Balance Sheet is a vital tool that helps you understand a company’s financial status by showing the balance between assets, liabilities, and shareholders’ equity.

For investors: it helps assess risks and opportunities For managers: it aids in planning and decision-making

However, reading only the balance sheet is not enough. You should also study other financial documents and the overall business context to make informed decisions.