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How to read my balance sheet and master financial indicators

How to read my balance sheet and master financial indicators

By Julie Mauvais

Published: May 3, 2025

Your accountant has sent you your balance sheet. But with all the different accounting entries, it's hard for the uninitiated to find their way around. Often perceived as a tool for "specialists", reading accounting documents can be a daunting task for many an entrepreneur, but it remains indispensable.

Here are some key points to help you read, understand and interpret your balance sheet.

Key points of the balance sheet

What is a balance sheet?

By definition, a balance sheet is a summary of a company's assets and liabilities at a given point in time. It is therefore a snapshot at a given moment in time.

This financial document is one of the components of the annual financial statements. It is drawn up at the end of the financial year and/or on the occasion of an interim balance sheet.

It is made up of two parts reflecting the company's financial value:

  • assets: what the company owns,
  • liabilities, what the company owes.

It is always balanced, i.e. total assets equal total liabilities.

The balance sheet is required by law for all companies operating under the "régime réel" system.

It provides a clear picture of your company's financial health and enables you to determine its solvency. It is a genuine tool for strategic decision-making.

What is the balance sheet made up of?

Presented in the form of a table, the balance sheet is read from top to bottom. Before reading each line in detail, it is important to keep in mind the different segments of the balance sheet.

ASSETS

LIABILITIES

Fixed assets

Shareholders' equity

Fixed assets Share capital
Reserves
Net income

Current assets

Current liabilities

Stock Provisions
Accounts receivable Borrowings and similar

Cash and cash equivalents

Trade, tax and social security payables

There are two columns, with assets on the left and liabilities on the right. On the assets side of the balance sheet, you'll find fixed assets, corresponding to durable goods, and current assets, comprising inventories and work-in-progress, receivables, cash and cash equivalents.

On the liabilities side, you'll find shareholders' equity (share capital, reserves and earnings), and current liabilities (financial, tax, social security, supplier debts, etc.).

Example - Reading notes

The sum of uses must always be equal to the sum of resources.
Profits represent a debt owed to associates.

Financial ratios and indicators for managing your business

Once you've read the balance sheet, you'll be able to analyze results using financial indicators to help you manage your business. Here, we'll look at two key financial indicators: working capital requirements (WCR) and working capital (WC).

Working capital: why calculate it?

The working capital requirement, or WCR, corresponds to the resources the company needs to operate, and represents the cash shortfall arising from the company's current activity (operations).

The calculation method is as follows: WCR = current assets (inventories + trade receivables) - current liabilities (trade payables, tax and social security liabilities).

It is presented in days of sales: WCR/Sales x 360

There are 3 possible scenarios:

  • WCR is positive : uses exceed resources. The company must finance its short-term needs with working capital or additional financial resources.
  • Zero WCR: uses equal resources. The company has no operating needs to finance, since current liabilities are sufficient to finance current assets.
  • WCR is negative: uses are less than resources. The business generates a positive cash flow. This is particularly the case for companies that pay their suppliers on time (30, 60, 90 days), have little inventory and whose customers pay cash. The company therefore has no need to use working capital to finance any short-term requirements.

What is working capital used for?

Working capital (WC) is defined as the excess of stable capital (shareholders' equity + medium- and long-term borrowed capital) over permanent uses (fixed assets).

It is a sustainable resource made available to the company by its shareholders and financial partners, enabling it to finance working capital.

Cash flow is therefore the difference between WCR and WCR. If working capital is less than working capital requirements, cash flow is negative.

Rely on the expertise of a professional

You now have all the tools you need to understand and interpret your balance sheet.

Knowing how to read a balance sheet is important, but the most important thing is to be able to analyze it to make the right decisions.

Mathieu Chauveau, CEO de Ça Compte Pour Moi, l’expert-comptable en ligne.

It's possible to draw up your company's balance sheet yourself, but this complex task requires a great deal of rigor. To ensure that your business evolves smoothly and meets its tax obligations, we strongly recommend the support of a chartered accountant. A true guarantee, this professional is the business owner's privileged partner, accompanying and advising him or her from the start-up phase through to business management.

At Ça Compte Pour Moi, we support entrepreneurs at every stage in the life of their businesses. Our dedicated experts present your accounting report in an illustrated video conference and are at your side every day.

Article translated from French