The balance sheet: what it owns, what it owes
वासलात, बुक भ्यालु र ऋण: सजिलो व्याख्या
Profit tells you how a company did this year. The balance sheet tells you whether it can survive a bad one: everything it owns, everything it owes, and what belongs to shareholders.
A photo, not a film
The income statement is a film of the year: what came in and went out. The balance sheet is a photo on one day: everything the company owns, everything it owes, and the difference - which belongs to shareholders.
It always balances, because of one simple equation:
Assets = Liabilities + Equity
What the company owns = what it owes to others + what belongs to its owners.
Assets, liabilities and equity in plain words
- Assets - things the company owns that have value: buildings, machines, inventory, money customers owe it, cash, investments. For a bank, the biggest asset is its loans.
- Liabilities - what it owes: bank loans, bonds/debentures, unpaid bills. For a bank, the biggest liability is customers' deposits.
- Equity (net worth, shareholders' funds) - the paid-up capital shareholders put in plus the profits kept over the years (reserves and retained earnings).
Book value per share
Book value per share = equity ÷ number of shares. For Sagarmatha Momo: Rs 40 crore ÷ 2 crore = Rs 200. It is the accounting value of your slice - roughly what each share would get if the company sold everything at book value and paid all its debts.
The market price is almost never equal to book value. A share trading at Rs 450 with a Rs 200 book value is priced at 2.25 times book (P/B 2.25): investors are paying for the profits they expect, not just the assets. Lesson 7 shows how to use this - it's especially important for banks.
Debt: the amplifier
Borrowing isn't bad in itself - it lets a company grow faster than its own money allows. But debt is an amplifier: in a good year it boosts the return to shareholders, in a bad year the interest still has to be paid, and the loss falls entirely on them.
- Debt-to-equity = total borrowings ÷ equity. Below 1 is generally comfortable for an ordinary business; well above 2 needs a good reason.
- Interest cover = operating profit ÷ interest. If profit is only just above the interest bill, one bad year can sink the company.
Hydropower companies in Nepal often carry heavy debt to build their plants. That's normal while building - but a delay or a dry year, with full interest still due, is exactly how good-looking hydro stocks get into trouble.
See it live on MacroLens NP Dump risk → Which companies look fragile - heavy debt, weak cover, deteriorating balance sheets.Reading a bank is different
A bank's business is borrowing (deposits) and lending (loans), so the normal debt rules don't apply. Instead, look at:
| Measure | What it tells you | Better when |
|---|---|---|
| Capital adequacy (CAR) | How much of its own capital stands behind its risky loans - its cushion for bad times. Nepal Rastra Bank sets a minimum. | Comfortably above the minimum |
| NPL ratio | Non-performing loans: the share of loans borrowers have stopped repaying. | Low and stable |
| Credit-to-deposit (CD) ratio | How much of its deposits it has lent out. Near the regulatory limit, it can't lend more. | Room below the limit |
| Net interest spread | The gap between what it earns on loans and pays on deposits. | Steady |
| Book value per share | The base for its P/B valuation (lesson 7). | Growing year after year |
When the economy slows, bad loans rise slowly, then quickly. A bank showing record profit while its NPL ratio climbs every quarter may be reporting the good news now and the bad news later. Watch the trend, not one number.
See it live on MacroLens NP
Everything in this lesson, worked out on real NEPSE data for every listed company - inside the MacroLens NP desk.
Lesson summary
- Assets = liabilities + equity. Equity (net worth) is what belongs to shareholders.
- Book value per share = equity / shares: the accounting value of your slice.
- Debt magnifies results both ways - too much of it turns a bad year into a crisis.
- Banks are read differently: capital adequacy (CAR), bad loans (NPL) and the credit-to-deposit ratio matter most.
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Lesson 1 is open to everyone. From here on, the course is still completely free - we just ask for an account so we can save where you stopped, keep your quiz scores and let you pick up on any device.
No card, no payment. 13 more lessons, 123 minutes in all.
Education only, not investment advice: nothing here tells you to buy or sell any share. Investing carries risk - you can lose money. Examples use made-up companies unless a real one is named.