Lesson plan · Understanding Businesses · Lesson 5
Reading a Balance Sheet
Why assets always equal liabilities plus equity — and what to look for.
- 45 minutes
- Grades 9–12
- Intermediate
- Activity: pairs
Objectives
Students will be able to:
- Read a balance sheet as a snapshot on one date
- Separate current and long-term items
- Calculate the current ratio and the debt-to-equity ratio
Materials
- Slide deck and a projector
- Worksheet (one per student)
- Exit ticket slips (bottom of the worksheet)
Standards
- National Standards for Personal Financial Education (2021)
- Builds business and economics understanding beyond the six topic areas.
- Texas TEKS §113.76 Personal Financial Literacy and Economics
- (1) The student understands the fundamental concepts of economics.
Topic-level alignment by FLC. How we map standards
Key vocabulary
- Current ratio
- Current assets ÷ current liabilities. Above 1 means the business has more short-term resources than short-term bills. Much below 1 can signal trouble paying bills.
- Debt-to-equity ratio
- Total liabilities ÷ equity. Higher means more of the business is funded by borrowing, which increases risk when times are tough.
Background reading
The official sources this lesson is based on.
45-minute agenda
0–5 min
Warm-up
Post: “Is a photo of your room or a video of your week more like a balance sheet? Why?”
Teacher note: A photo — a balance sheet is a snapshot on one date. The income statement is the video.
5–17 min
Direct instruction
Present the lesson slides. Make sure students leave with these points:
- Balance sheet = snapshot on one date.
- Current = within a year. Long-term = after a year.
- Current ratio = current assets ÷ current liabilities.
- Debt-to-equity = total liabilities ÷ equity.
Use the “See it” slide (Trailhead Outfitters: balance sheet on December 31) to make the idea visual.
17–22 min
Worked example
Walk through “Reading Trailhead's snapshot” on the slides. Pause before the result and ask students to predict it.
22–32 min
Financial Health Check
Format: pairs · 10 minutes
- Company A: current assets $120,000, current liabilities $60,000, total liabilities $150,000, equity $300,000. Company B: current assets $80,000, current liabilities $100,000, total liabilities $400,000, equity $100,000.
- Pairs calculate each company's current ratio and debt-to-equity ratio.
- Pairs decide which company they'd rather lend to and write two reasons.
What to look for: A: current ratio 2.0, debt-to-equity 0.5. B: current ratio 0.8, debt-to-equity 4.0. A is safer — it can cover bills due this year and relies less on debt.
32–37 min
Check for understanding
Use the question slides — or run them as a Four Corners game. Questions:
- What's the current ratio, and what might it signal?
- What's the main difference between the balance sheet and the income statement?
- A higher debt-to-equity ratio generally means a business relies more on borrowed money.
37–42 min
Discussion
- Why might a company with lots of profit still have a weak balance sheet?
- What would worry you more: low cash or high debt? Why?
42–45 min
Exit ticket
Prompt: What might a current ratio below 1 suggest?
Differentiation
Common misconception
“A company with more assets is always healthier.” It depends on how much it owes and when.
Support
Color-code current (within a year) and long-term items on a sample balance sheet.
Extension
Using the Trailhead Outfitters balance sheet in the lesson, calculate both ratios and explain what they show.
Homework or make-up work
Students can complete the full interactive lesson — including its knowledge check — at learnwithflc.org/courses/understanding-businesses/balance-sheet. No account needed; progress saves on their device.