The Financial Snapshot That Shows If a Company Is Worth Your Money

Is a Company Actually Worth Your Money? To Know, Use the Balance Sheet

This probably happened to you quite a few times over the years: You're scrolling through your phone, checking out the latest trainers on ASOS, queuing up your Spotify wrapped playlist for the hundredth time, and thinking about grabbing a Greggs sausage roll on your way home. But here's a question that probably never crossed your mind - are any of these companies actually making money? Or more importantly, could they go bust tomorrow and leave you with a gift card you can't use?

This is where the balance sheet comes in, and trust me, you need to understand this material if you want to get that grade 7 in your IB Business Management course or have a successful business of your own in the future.

Is It Possible For Greggs To Nearly Run Out of Dough (Literally)?

Back in 2020, when the pandemic hit, Greggs had to shut all 2,000+ of its shops overnight. Imagine being a business that relies on selling sausage rolls and steak bakes to people on their lunch and breakfast break, and suddenly... no one's going anywhere. The company had shops (assets), ovens (more assets), stock of puff pastry (definitely assets), but suddenly very little cash coming in. They still owed money to suppliers (liabilities), had staff wages to pay (more liabilities), and needed to figure out fast: "Right, what have we actually got, and what do we owe?"

That's exactly what a balance sheet tells you. It's like taking a photo of everything a business owns and everything it owes at a specific moment in time. Not over a year, not "on average" - just one single day. Think of it as a company's financial selfie.

So What's On The Balance Sheet?

A balance sheet has three main sections, and they all have to balance (difficult to believe right?). Here's the breakdown:

Assets: All The Stuff You Own

Non-current assets are the big, expensive things that stick around for ages - more than a year. For Greggs, this includes:

• Property, plant, and equipment: All those shops, ovens, display counters, and fridges. As of June 2024, Greggs had £568 million worth of these. That's a lot of sausage roll production capacity.

Most of this stuff loses value over time. Your iPhone from three years ago isn't worth what you paid for it, right? Same principle. That oven that cost £10,000 new might only be worth £7,000 after a few years of churning out yum yums. This loss in value is called depreciation, and it gets subtracted from the original value to give you the net value of non-current assets.

Current assets are the quick and flexible stuff - things you expect to use or turn into cash within a year:

Cash is obvious - the actual money sitting in the company's bank account or till. It's the most liquid asset (meaning it's already money - you can't get more liquid than that). Greggs had £10 million in cash in the example we're looking at. Not loads for a company that size, but we'll come back to that.

Debtors are people who owe YOU money. Say ASOS sells clothes to a corporate client for an event, and gives them 30 days to pay. That money they're waiting for? That's a debtor. It's not cash yet, but we assume it should be soon. In the example, that's £12 million.

Stock (or inventory for my American students) is all the unsold stuff. For Greggs, it's the sausage rolls, sandwiches, and doughnuts sitting in the shops and warehouses. For ASOS, it's all those clothes waiting to be bought. The example shows £35 million in stock.

Liabilities: All The Stuff You Owe

But hold on a sec, What does the company owe other people?

Current liabilities are debts you need to pay back within a year:

Bank overdrafts are like when you dip into your overdraft at uni because you've run out of money before your student loan drops. Companies do the same thing, but on a much bigger scale. It's expensive though - the interest rates are usually harsh - so it's meant to be very short-term. In our example, that's £5 million.

Trade creditors are the opposite of debtors - these are suppliers that the company owes money to. Maybe Greggs bought a massive order of flour and the supplier said "pay us in 30 days." Until they pay, it's a creditor. That's £15 million in the example.

Other short-term loans might be from banks or other lenders, but they need paying back within 12 months. That's £22 million here.

Non-current liabilities are the long-term debts - stuff you don't need to pay back for more than a year. Usually things like:

Long-term borrowings - big loans from banks that might not need paying back for 5, 10, even 20 years. These could be mortgages on buildings or loans to fund major expansion. In our example, there's £300 million of this. That's a chunky loan, but if the company's making money and can afford the repayments, it's not necessarily a problem.

The Bit That Has To Balance

The total value of everything you own (assets) has to equal the total of what you owe (liabilities) PLUS what's left over for the owners (equity).

Think of it like this: if you bought a car for £10,000 but took out a £6,000 loan to do it, you own a £10,000 car (asset) but owe £6,000 (liability). What's yours? £4,000 (equity).

Assets = Liabilities + Equity. It HAS to balance.

Net assets is just a fancy way of saying "what's left when you subtract all the debts from all the stuff you own":

Net assets = Total assets – Total liabilities

In our example: £537m (assets) - £342m (liabilities) = £195m (net assets)

Working Capital: The Day-to-Day Money

Before we get to equity, there's one more crucial concept: working capital (also called net current assets). This is:

Working capital = Current assets – Current liabilities

Using our example: £57m - £42m = £15m

This tells you how much money a company has available for the daily running of the business. Need to pay staff wages on Friday? That comes from working capital. Need to order more stock? Working capital. It's like your available balance after all your direct debits have gone out.

If a company's working capital is negative - meaning they owe more in the short term than they have available - that's a red flag. It's like having £50 in your account but £200 worth of bills due tomorrow. Not ideal.

The Owners' Bit: Equity

Equity (or shareholders' equity) represents the actual value that belongs to the owners of the company. It's made up of two main parts:

Share capital is the money that was originally invested by shareholders when they bought shares in the company. If you started a company and sold 1,000 shares at £100 each, that's £100,000 of share capital. In our example, that's £110 million.

Retained earnings is all the profit the company has made over the years that it DIDN'T pay out to shareholders as dividends. Instead, it kept it (retained it) to reinvest in the business. In the example, that's £85 million.

Together, these make up £195 million of equity, which matches exactly with our net assets. Has to - that's the whole point of a balance sheet!

IB Business Management Real-life Examples: Three Companies, Three Stories

Let's look at some actual companies you interact with and see what their balance sheets tell us.

Greggs: The Sausage Roll Empire

In 2024, Greggs hit over £2 billion in revenue and opened their 2,600th shop. Their balance sheet from mid-2024 showed about £568 million in property, plant and equipment - all those ovens, shop fittings, and delivery vans. They also had £302 million in something called "right-of-use assets" - basically, shops they lease rather than own.

They only had modest cash reserves. Why? Because they're aggressively expanding - opening 140-160 new shops per year. That takes cash. They're reinvesting their profits into growth rather than hoarding money in the bank. Their strategy is clear from the balance sheet: use retained earnings and some borrowing to fund rapid expansion across the UK.

Is this risky? A bit. But their working capital is positive, they're profitable, and demand for vegan sausage rolls shows no signs of slowing down.

ASOS: The Online Fashion Rollercoaster

ASOS tells a completely different story. In April 2025, they announced they'd lost £198.8 million in just six months and had shut down their Atlanta distribution centre, taking a massive £177 million hit. Their balance sheet shows they've been desperately trying to reduce stock - they went from holding £1.1 billion worth of unsold clothes down to around £520 million. That's good (less money tied up in last season's questionable fashion choices) but also shows they had serious problems with buying too much stock that didn't sell.

Their current liabilities jumped because they owe money to suppliers (trade creditors) while their cash position got tighter. They had to do a major refinancing deal and sold off their Topshop and Topman brands just to strengthen their balance sheet.

The IB Business Management lesson? A balance sheet can show you when a company's in trouble before it becomes headline news. ASOS's struggles were written all over their balance sheets for months before things got really messy.

Spotify: The Streaming Giant That Finally Sorted It Out

For years, Spotify had a weird problem - millions of users, but massive liabilities from paying artists and labels. Their balance sheet would show huge revenues but thin profits. By 2025, something changed. Their total assets grew to about $13.7 billion (roughly £10.8 billion) while they finally started turning consistent profits.

What's interesting is how much of their value is intangible - user data, algorithms, brand recognition. These don't show up on a balance sheet the same way a Greggs oven does. Their biggest assets aren't physical things but relationships (with artists, users, and labels) and technology. Their current liabilities include what they owe to rights holders for streams, which they need to pay out quarterly.

The transformation in their balance sheet from "streaming service that loses money" to "streaming service with positive net assets and growing equity" took over a decade. Their story shows that balance sheets aren't just a snapshot - tracking how they change over time tells you the real story.

Why Is All This Relevant?

Right, so you're probably thinking "Great, but when am I ever going to use this?" Fair question.

If you're starting a business (even a side hustle), you need to know this stuff. Can you afford to buy more stock? Should you take out a loan? Do you have enough working capital to survive a quiet month? These are balance sheet questions.

If you're investing (even just buying shares through a platform), the balance sheet tells you if a company is actually worth what people are paying for it. Loads of companies have sky-high share prices but terrible balance sheets. That's how people lose money.

If you're job hunting, checking a potential employer's balance sheet can tell you if they're financially stable or about to make redundancies. Seriously - this could save you from joining a sinking ship.

IB Business Management Exam Gold

For your exams, here's what they love to test:

Can you calculate working capital? Remember: Current assets minus current liabilities. If it's negative, explain why that's a problem.

Can you spot the difference between current and non-current? The 12-month rule is key. Less than a year = current. More than a year = non-current.

Do you understand depreciation? That's why the value of non-current assets goes down over time. It's not negotiable - most physical stuff loses value.

Can you use the balance sheet to assess financial health? Look at the ratio between assets and liabilities. Loads of debt compared to assets? Risky. Negative working capital? Very risky. Barely any retained earnings? They're not making much profit.

Can you explain why the balance sheet always balances? It's not magic - it's double-entry bookkeeping. Every transaction affects at least two things. Buy a van with a loan? Assets go up (van), liabilities go up (loan). Balanced.

Take This With You

A balance sheet is basically a financial health check. It won't tell you if a company's making profit right now (that's what the income statement's for), but it will tell you if they own more than they owe, if they can pay their bills, and if they're building value over time.

Next time you're buying something from a company - especially if you're buying their shares or thinking about working for them - have a quick look at their balance sheet. It's all public information for listed companies. You'll start seeing patterns: companies that are growing fast but have loads of debt (risky but exciting), companies that are stable with loads of cash (boring but safe), and companies that are basically on life support (avoid).

And remember - ASOS's balance sheet was screaming "trouble!" months before they had to shut warehouses and sell off brands. Greggs's balance sheet shows a company that's reinvesting everything into growth. Spotify's shows a business that finally figured out how to turn streams into sustainable profits.

The numbers tell stories. You just need to know how to read them.

Quick IB Business Management Revision Checklist:

• Balance sheet = financial snapshot at one point in time

• Assets (what you own) = Liabilities (what you owe) + Equity (what belongs to the owners)

• Current = less than 12 months, Non-current = more than 12 months

• Working capital = current assets - current liabilities (needs to be positive!)

• Net assets = total assets - total liabilities

• Depreciation reduces the value of most non-current assets over time

• The balance sheet MUST balance (it's in the name!)

Stay well,