Understanding a company’s balance sheet is one of the most important steps in fundamental analysis. While the Profit & Loss (P&L) statement shows performance over a single year, the balance sheet shows the company’s financial position at a particular date—and how that position evolves year after year.
In this article, we break down the consolidated balance sheet in simple terms using an example from Bajaj Auto, helping you learn how to read and analyze the numbers confidently.
What Makes a Balance Sheet Different From a P&L?
A subtle but crucial difference:
P&L Statement → captures income & expenses for one specific year
Balance Sheet → carries values year to year, showing cumulative financial position
Think of the P&L as a movie for one year, and the balance sheet as a photo album showing your financial journey across many years.
The Structure of a Balance Sheet
The balance sheet has two broad sides:
Assets
Liabilities + Equity
Each of these is divided further into:
Non-current (long-term)
Current (short-term)
So you get four key categories:
Non-current assets
Current assets
Non-current liabilities
Current liabilities
Let’s understand each part in detail.
1. Non-Current Assets: Long-Term Resources of the Business
These are assets that provide long-term economic value, usually more than a year.
Examples include:
Property, Plant & Equipment (PPE) — factories, machinery, buildings
Intangible assets — patents, trademarks, brand value
Long-term financial investments — government bonds, long-term mutual funds, strategic investments
In Bajaj Auto’s 2021 balance sheet:
Non-current assets ≈ ₹19,400 crore
If you see a large line item, always drill deeper by checking the associated note.
For example:
Note 5B explains long-term financial investments
Note 2 explains property, plant, and equipment
These notes reveal the exact breakdown of what the company owns.
2. Current Assets: What the Company Will Use Within One Year
These include assets that are expected to convert into cash within a year.
Examples:
Inventories — finished goods waiting to be sold
Trade receivables — customer payments due
Short-term loans — expected repayments within a year
Cash & bank balances — the company’s liquid funds
For Bajaj Auto:
Current assets ≈ ₹14,187 crore
To understand a company’s liquidity and short-term financial strength, study this section closely.
Total Assets = Non-current assets + Current assets
For Bajaj Auto:
₹19,400 crore + ₹14,187 crore = ₹33,601 crore in assets
This represents what the company owns.
3. Non-Current Liabilities: Long-Term Financial Obligations
Liabilities represent what the company owes.
Non-current liabilities include obligations that the company must settle over several years, such as:
Long-term provisions
Employee retirement benefits
Warranty provisions
Long-term loans (if any)
Using Bajaj Auto as an example:
Note 16 explains provisions related to welfare schemes, compensated absences, warranties, etc.
These show the company’s long-term responsibilities.
4. Current Liabilities: Short-Term Financial Obligations
These are payments the company must make within 12 months, such as:
Vendor payments
Commission payable
Employee benefit payables
Security deposits
Other operational liabilities
For Bajaj Auto:
The line item Other Current Liabilities links to Note 19, which gives the full breakdown.
High current liabilities are not always bad—but they must be compared against current assets to judge liquidity.
5. Equity: The Owners’ Share in the Business
Equity represents what belongs to shareholders. It has two main parts:
1. Share Capital
The money the promoters and early investors contributed to start the company.
For Bajaj Auto:
Share capital = ₹289 crore
If the company raises more capital in future, this number increases.
2. Reserves & Surpluses
Also called Other Equity.
This includes:
Profits accumulated over the years
Funds earmarked for specific purposes
Retained earnings that are reinvested into the business
You can explore Note 14 to see exactly how the reserves are structured.
In simple words:
Share capital = Initial money
Reserves & surplus = Money the company created through performance
How to Analyze a Balance Sheet Like a Pro
Identify large line items
→ Study them in detail using associated notes.Check asset growth year-on-year
→ Are plants expanding? Are investments growing?Examine liquidity
→ Compare current assets vs. current liabilities.Understand long-term commitments
→ Look at provisions, loans, warranties, etc.Analyse the equity section
→ Good companies grow reserves steadily.
Why This Matters for Investors
A balance sheet reveals:
Financial strength
Debt load
Liquidity
Asset quality
Expansion strategy
Management’s capital allocation skills
If you want to pick stocks for long-term wealth creation, the balance sheet is your best friend.
Conclusion
The consolidated balance sheet gives you a complete snapshot of a company’s financial position.
When combined with the P&L and Cash Flow statement, it allows you to evaluate:
Stability
Profitability
Efficiency
Long-term sustainability
Learning to interpret these numbers will help you make smarter, more confident investment decisions.
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