Your annual balance sheet arrives. The two sides agree, but that does not tell you whether the business is healthy. Will customers pay on time? Is the debt manageable? Why is the bank balance still low when equity has increased?
To answer those questions, connect the figures to the transactions behind them. We will work through a simple Swiss SME balance sheet and turn each observation into a practical question or decision.
At a glance
- A balance sheet shows the business’s financial position on a specific date. It does not, by itself, measure performance over the whole year.
- Assets show its resources. The other side shows liabilities and equity: how those resources are financed.
- To analyse a balance sheet, check cash, the quality of receivables and inventory, debt maturity dates and equity.
- Compare several accounting periods and read the balance sheet alongside the income statement and cash-flow forecast.
Start with the two sides of the balance sheet
Assets include bank balances, unpaid customer invoices, inventory and equipment. Liabilities include amounts owed to suppliers and lenders. Equity represents capital contributed by owners and profits retained in the business, less accumulated losses and distributions.
In a French-language Swiss balance sheet, the heading “passif” includes both liabilities and equity. The equation is assets = liabilities + equity. Do not translate “passif” as liabilities alone and then add equity to that total again. This terminology is a common source of confusion for English-speaking business owners reading Swiss accounts.
Our explanation of the Swiss balance sheet structure covers the individual line items. Here, the focus is on what those figures tell you about the business.
Turn each heading into a practical question
Before calculating ratios, translate accounting labels into business questions. The balance sheet becomes easier to read when each amount refers to something you recognise in your company.
On mobile, scroll the table horizontally.
| Item | What it represents | First check |
|---|---|---|
| Cash and cash equivalents | Money held in cash and bank accounts | Do the balances agree with the supporting statements? |
| Trade receivables | Amounts customers still owe you | Which invoices are overdue or disputed? |
| Inventory | Goods and other stocks included in the accounts | Do they exist, and can they still be sold or used? |
| Non-current assets | Resources used over more than one period | Are the assets still used and correctly valued? |
| Current liabilities | Obligations classified as payable in the short term | What are the actual payment dates? |
| Equity | Assets less liabilities | Did equity change because of profit, capital contributions or distributions? |
The order in which you read the headings matters less than this question: can you explain each significant balance using supporting documents or a detailed schedule? A large “other receivables” balance deserves as much attention as a more familiar line item.
A Swiss balance sheet example
Consider a small Swiss service company organised as an LLC. The following figures are fictional and expressed in CHF.
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| Assets | Amount | Liabilities and equity | Amount |
|---|---|---|---|
| Bank | 25,000 | Suppliers and other current liabilities | 35,000 |
| Trade receivables | 45,000 | Long-term loan | 25,000 |
| Equipment, net carrying amount | 30,000 | Equity | 40,000 |
| Total | 100,000 | Total | 100,000 |
The two sides balance. This confirms arithmetic consistency, not financial health. We still need to know whether customers will pay and when liabilities fall due.
Step 1: check cash and payment dates
The company has CHF 25,000 in the bank and CHF 35,000 of current liabilities. That gap is not automatically a problem: customers may pay before suppliers need to be paid. If all the liabilities fall due tomorrow, however, there is an immediate funding gap.
Look at dates, not just totals. Separate freely available cash from restricted balances. Then prepare a cash-flow forecast for the coming weeks and months.
The current ratio in this example is CHF 70,000 ÷ CHF 35,000 = 2. Current assets are twice current liabilities. That ratio does not guarantee timely payment : CHF 45,000 of the current assets still depends on customers settling their invoices.
Step 2: assess asset quality
An old receivable does not have the same economic quality as a recent invoice to a reliable customer. Request an aged receivables report and identify disputes. Allowances and write-downs must reflect the risk that invoices will not be collected.
For inventory, check that goods exist, their condition and whether they can be sold. Obsolete stock should not create a misleading impression of wealth. Our article on stocktaking explains how to organise these checks.
Then review non-current assets : which investments are recent, and what will need replacing? A low carrying amount does not necessarily mean that equipment is unusable. Conversely, a high amount in the accounts does not guarantee a strong resale value.
How a doubtful receivable changes the analysis
In our example, assets total CHF 100,000, including CHF 70,000 of current assets. Current liabilities are CHF 35,000 and equity is CHF 40,000. Suppose a CHF 15,000 receivable must be written down in full, ignoring other effects for this illustration. Assets then fall to CHF 85,000 and equity to CHF 25,000. The equity ratio drops from 40% to CHF 25,000 ÷ CHF 85,000 = 29.4%. The current ratio falls from 200% to CHF 55,000 ÷ CHF 35,000 = 157.1%. No cash leaves the bank when the write-down is recorded: the amount expected to be recovered has changed. The cash-flow forecast must also remove the expected receipt. If losses become significant, the company’s legal duties require a separate assessment.
Step 3: understand the financing
Equity of CHF 40,000 represents 40% of total assets. It provides a buffer against losses. Whether that is sufficient depends on the business model, stability of earnings and future commitments.
Borrowing is not inherently a weakness. Ask whether it finances a useful investment and whether repayments fit the expected cash flow. Review guarantees, shareholder loans and bank covenants as well as the loan balance itself.
Avoid treating any ratio as a universal pass mark. A consulting firm and a retailer carrying substantial inventory have different financing needs. A healthy ratio for one may not be appropriate for the other.
Step 4: compare periods and connect the statements
Compare each balance with the previous year. If receivables grow faster than sales, investigate collection times. If equity falls, identify the losses, distributions or other movements responsible.
The income statement explains the period’s financial performance. Thenotes to the financial statements provide information about accounting policies, guarantees and particular circumstances. Consistently calculated financial ratios then help you track trends over time.
A profitable company can run short of cash. A perfectly balanced balance sheet can belong to a struggling business. Keep both points in mind before drawing conclusions from the totals alone.
Compare the same figures over two years
For a separate fictional comparison, consider the company before the receivables write-down. Year N uses the CHF 100,000 balance sheet shown above.
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| Indicator | Year N−1 | Year N | What to investigate |
|---|---|---|---|
| Total assets | 90,000 | 100,000 | What explains the growth in the balance sheet? |
| Trade receivables | 30,000 | 45,000 | Are customers taking longer to pay? |
| Annual sales | 180,000 | 190,000 | Are receivables increasing faster than sales? |
| Equity | 35,000 | 40,000 | How much comes from earnings and how much from capital movements? |
Receivables have increased by 50%, compared with approximately 5.6% for sales. That warrants a review of payment dates and seasonality. The trend alone does not prove that a debt is uncollectible, and it does not replace checking individual invoices.
Turn the findings into concrete actions
In the CHF 100,000 balance sheet, cash of CHF 25,000 does not cover the CHF 35,000 of current liabilities on its own. Some of the CHF 45,000 owed by customers may arrive before payments are due. Check that against the dates rather than assume it from the total.
The CHF 15,000 uncollectible receivable reduces both asset value and equity. It also removes money that the cash budget may have relied on. The same finding therefore belongs in the accounting analysis and the cash-flow forecast.
On mobile, scroll the table horizontally.
| Finding | What to investigate | Possible action |
|---|---|---|
| Receivables grow faster than sales | Delays, disputes and payment terms | Improve collection follow-up and revise expected receipt dates |
| Inventory grows without comparable growth in activity | Slow-moving goods, advance purchases and obsolescence | Adjust purchasing and review inventory valuation |
| Near-term liabilities exceed accessible resources | A dated schedule of cash inflows and outflows | Arrange financing or negotiate payment dates |
| Equity is falling | Losses, distributions and other changes | Identify the cause and review its consequences with your accountant |
Before a review meeting, assemble the comparative balance sheet, aged receivables list and repayment schedules for major liabilities. These documents help turn a worrying figure into an explanation you can verify and act on.
Make the balance sheet a starting point for decisions
A useful balance sheet review identifies reliable resources, upcoming commitments and changes that require action. You do not need to analyse every line at once. Start with significant amounts, unusual movements and the payments due soonest.
Our accounting service can help you prepare understandable accounts and interpret what they reveal about your business, so that you can plan the coming months with clearer priorities.
Frequently asked questions
What should I look at first in a balance sheet?
Available cash, liabilities falling due and customer receivables. Then examine inventory, investments and equity. Ask for supporting schedules rather than relying only on the year-end totals.
Does a balanced balance sheet mean the business is healthy?
No. Equality between assets and liabilities plus equity is an accounting requirement. It proves neither profitability nor solvency nor the ability to pay tomorrow’s bills.
How often should I analyse the balance sheet?
Review it at least when preparing annual accounts. Monthly or quarterly reviews are useful when the business is growing, margins are declining or cash is becoming tight. Use a more frequent cash-flow forecast when payment timing is critical.
Sources and references
Romain Prieur is a Swiss certified public accountant and the founder of Entreprendre.ch. With more than ten years of experience in audit and advising Swiss businesses, he helps entrepreneurs with company formation, accounting and corporate taxation.
