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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
Present slidesWorksheet + keyStudent lesson

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)

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.

45-minute agenda

  1. 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.

  2. 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.

  3. 17–22 min

    Worked example

    Walk through “Reading Trailhead's snapshot” on the slides. Pause before the result and ask students to predict it.

  4. 22–32 min

    Financial Health Check

    Format: pairs · 10 minutes

    1. 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.
    2. Pairs calculate each company's current ratio and debt-to-equity ratio.
    3. 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.

  5. 32–37 min

    Check for understanding

    Use the question slides — or run them as a Four Corners game. Answers:

    1. What's the current ratio, and what might it signal? — A. 0.75 — it may struggle to pay bills due within a year
    2. What's the main difference between the balance sheet and the income statement? — B. The balance sheet is a snapshot on one date; the income statement covers a period.
    3. A higher debt-to-equity ratio generally means a business relies more on borrowed money. — True
  6. 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?
  7. 42–45 min

    Exit ticket

    Prompt: What might a current ratio below 1 suggest?

    Answer: The business may struggle to pay the bills due within the next year.

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.