The equation
Assets = Liabilities + Equity. Every transaction keeps this equation in balance.
Ratios to watch
- Current ratio = Current assets ÷ Current liabilities (a value < 1 may signal liquidity risk).
- Debt-to-equity = Total liabilities ÷ Equity.
Common questions
Is equity the same as profit? No — profit is one component of retained earnings, which sits inside equity. “Net assets” and “equity” are usually the same figure.
