Insights · Planning · 31 October 2026

---

How to read a balance sheet in ten minutes

The profit and loss shows how you did this year. The balance sheet shows where the business stands today: what it owns, what it owes and what is left for the owners.

The three parts

• Assets: cash, debtors, stock, equipment, vehicles. Current assets turn into cash within 12 months.
• Liabilities: creditors, GST and PAYG owing, loans, employee leave. Current liabilities are due within 12 months.
• Equity: assets minus liabilities, the owners' stake, including retained profits.

Five quick checks

1. Current ratio: current assets ÷ current liabilities. Below 1 means short-term bills exceed short-term resources.
2. Tax accounts: are GST, PAYG and super owing in line with the latest BAS? Big balances are a warning sign.
3. Debtors: growing faster than sales? See working capital.
4. Loans to owners: in a company, these can raise Division 7A issues.
5. Equity: negative equity means the business owes more than it owns.

Lenders read the balance sheet first: getting lender ready. Want monthly reporting you understand? See our fractional CFO service.

Quick answers

What does a balance sheet show?

What the business owns (assets), owes (liabilities) and the owners' stake (equity) at a point in time.

What is a healthy current ratio?

Above 1 means current assets cover current liabilities; many lenders look for more headroom.

Sources

• business.gov.au: Review your financial health
• business.gov.au: Guide to managing cash flow

General information only. This article does not take into account your circumstances and is not tax, legal or financial advice. Rates and rules change; check the sources above and get advice for your business before acting.