The assets balance, but they are not all money in the bank
Take a fictional company on 30 September 2026. A balance sheet records what it owns and owes on that date. What it owns is called assets; what it owes is liabilities. Subtract liabilities from assets and the amount left in the accounts for the owners is equity. All figures below are Korean won and cover the same company operations.
The company has ₩10 million of cash, ₩30 million owed by customers for past sales and ₩40 million of goods not yet sold. The unpaid customer bills are trade receivables; the goods are inventory. Together these make ₩80 million of current assets: cash and items expected to be used or turned into cash in the normal buying-and-selling cycle or the applicable short-term period. Equipment and other assets for longer use are non-current assets, adding ₩120 million. The current label does not promise that every item will turn into cash tomorrow.
Current liabilities are amounts due within the applicable near-term period. Here they include ₩10 million of supplier bills, called trade payables, ₩20 million of short-term loans and ₩10 million due soon on an originally long-term loan. Another ₩60 million is non-current liabilities. On a narrow screen, scroll the table sideways to see every column.
| Balance-sheet item | Amount |
|---|---|
| Cash | ₩10,000,000 |
| Trade receivables | ₩30,000,000 |
| Inventory | ₩40,000,000 |
| Total current assets | ₩80,000,000 |
| Non-current assets | ₩120,000,000 |
| Total assets | ₩200,000,000 |
| Trade payables | ₩10,000,000 |
| Short-term loans | ₩20,000,000 |
| Current portion of long-term debt | ₩10,000,000 |
| Total current liabilities | ₩40,000,000 |
| Non-current liabilities | ₩60,000,000 |
| Total liabilities | ₩100,000,000 |
| Equity | ₩100,000,000 |
Assets equal liabilities plus equity: ₩200,000,000 = ₩100,000,000 + ₩100,000,000. Trade payables, the bills owed to suppliers, count as liabilities even though they are not bank loans. Equity is the value left in the accounts after liabilities are subtracted from assets; it is not a separate pot of cash.
The current portion of long-term debt counts within current liabilities; its original loan label does not keep that portion non-current.
100% debt-to-equity and a 200% current ratio measure different things
This guide’s debt-to-equity ratio divides all liabilities by the equity left for owners at the reporting date. It asks how the amount owed compares with the recorded owners’ share, rather than how much money is immediately available. Some English-language sources count only interest-bearing borrowing as debt. Check their definition before comparing it with this total-liabilities calculation.
The current ratio divides current assets by current liabilities. We show both ratios as percentages: 100% equals 1×, and 200% equals 2×. The amount divided by is called the denominator. Working capital is current assets minus current liabilities: a money amount, not a percentage or the bank balance.
| Measure | Calculation | Result |
|---|---|---|
| Debt-to-equity | Total liabilities ÷ equity × 100: 100,000,000 ÷ 100,000,000 × 100 | 100% |
| Current ratio | Current assets ÷ current liabilities × 100: 80,000,000 ÷ 40,000,000 × 100 | 200% |
| Working capital | Current assets − current liabilities: 80,000,000 − 40,000,000 | ₩40,000,000 |
Liabilities of ₩100 million equal equity of ₩100 million, giving 100% debt-to-equity. They are only half the ₩200 million assets, so 100% does not mean every asset is funded by debt. The 200% current ratio means near-term assets are twice near-term obligations. Much of those assets is not cash, which is why it does not promise that the bank can cover payments twice over. Neither ratio identifies a universally safe company.
A ₩40 million loan can raise or lower the current ratio
Each change below starts separately from the original snapshot. A new long-term loan is entirely non-current; a new short-term loan is entirely current. Both put ₩40 million into cash. These instant comparisons exclude interest, fees and all other transactions.
| Case | Cash | Current assets | Total assets | Current liabilities | Non-current liabilities | Total liabilities | Equity | Debt-to-equity | Current ratio | Working capital |
|---|---|---|---|---|---|---|---|---|---|---|
| Original snapshot | ₩10,000,000 | ₩80,000,000 | ₩200,000,000 | ₩40,000,000 | ₩60,000,000 | ₩100,000,000 | ₩100,000,000 | 100% | 200% | ₩40,000,000 |
| New long-term loan | ₩50,000,000 | ₩120,000,000 | ₩240,000,000 | ₩40,000,000 | ₩100,000,000 | ₩140,000,000 | ₩100,000,000 | 140% | 300% | ₩80,000,000 |
| New short-term loan | ₩50,000,000 | ₩120,000,000 | ₩240,000,000 | ₩80,000,000 | ₩60,000,000 | ₩140,000,000 | ₩100,000,000 | 140% | 150% | ₩40,000,000 |
| Move existing debt into current liabilities | ₩10,000,000 | ₩80,000,000 | ₩200,000,000 | ₩80,000,000 | ₩20,000,000 | ₩100,000,000 | ₩100,000,000 | 100% | 100% | ₩0 |
With the long-term loan, the company gets more cash without adding an amount to near-term liabilities. The current ratio therefore rises to 300%. Its debt-to-equity ratio also rises, to 140%, because it owes more overall. The higher current ratio describes the timing categories, not a reduction in borrowing.
The short-term loan gives the same ₩50 million cash balance, but adds to near-term obligations too. Current assets—the top of the division, or numerator—rise from ₩80 million to ₩120 million. Current liabilities—the amount divided by, or denominator—double to ₩80 million. The current ratio falls to 150%. Working capital stays at ₩40 million because equal new amounts were added on both sides of that subtraction.
The last row involves no new loan or payment. As repayment approaches, ₩40 million of existing non-current debt is reclassified as current. Total liabilities and cash stay unchanged, but the current ratio falls to 100%. The liability has moved between maturity categories; the reclassification itself has not used cash.
Selling inventory does not always provide tomorrow's cash
Return to the original company and sell all ₩40 million of goods on credit: customers receive them now and pay later. Set the sale price equal to the goods’ value in the accounts, their carrying amount. Sales and the cost assigned to the sold goods then match, so there is no profit to change equity. There are no selling costs or tax effects. Inventory falls by ₩40 million and receivables rise by the same amount; no cash has arrived.
| Case | Cash | Receivables | Inventory | Current assets | Debt-to-equity | Current ratio |
|---|---|---|---|---|---|---|
| Before the sale | ₩10,000,000 | ₩30,000,000 | ₩40,000,000 | ₩80,000,000 | 100% | 200% |
| After the credit sale | ₩10,000,000 | ₩70,000,000 | ₩0 | ₩80,000,000 | 100% | 200% |
The current ratio remains 200%. If ₩20 million of the existing current liabilities is due the following day and none of those receivables can be collected in time, the cash shortfall at that deadline is still ₩20,000,000 − ₩10,000,000 = ₩10,000,000. No other funding is available in this case. A positive working-capital figure can therefore coexist with a payment shortfall.
When customers must pay, how much is overdue and how quickly goods sell therefore matter. A receivable expected next month cannot pay tomorrow's bill.
If a customer cannot pay, the recorded receivable may have to be reduced. This reduction is called impairment and can also reduce the equity left in the accounts. It is a loss of value, separate from merely waiting for a payment in the example above. Our profit and cash flow guide traces the arrival of customer money through a full month.
A missing denominator is not zero
The following rows are separate, partial input records, not complete balance sheets. A missing equity or current-liability figure remains unknown; the original company's totals cannot supply it. We mark debt-to-equity as not meaningful when equity is zero or negative, and current ratio as undefined when current liabilities are zero.
| Input case | Total liabilities | Equity | Current assets | Current liabilities | Debt-to-equity shown here | Current ratio shown here |
|---|---|---|---|---|---|---|
| Zero equity | ₩200,000,000 | ₩0 | ₩80,000,000 | ₩40,000,000 | Not meaningful: zero equity | 200% |
| Negative equity | ₩220,000,000 | −₩20,000,000 | ₩80,000,000 | ₩40,000,000 | Not meaningful: negative equity | 200% |
| No current liabilities | ₩100,000,000 | ₩100,000,000 | ₩80,000,000 | ₩0 | 100% | Undefined: zero current liabilities |
| Equity unavailable | ₩100,000,000 | Unavailable | ₩80,000,000 | ₩40,000,000 | Cannot calculate: missing equity | 200% |
| Current liabilities unavailable | ₩100,000,000 | ₩100,000,000 | ₩80,000,000 | Unavailable | 100% | Cannot calculate: missing current liabilities |
| No current assets | ₩100,000,000 | ₩100,000,000 | ₩0 | ₩40,000,000 | 100% | 0% |
Negative equity can produce a negative arithmetic result, but it is not a favourable low debt ratio. Likewise, no current liabilities does not mean no liabilities: that row still has ₩100 million of total liabilities. A genuine zero numerator with a positive denominator, by contrast, gives the valid 0% current ratio in the last row.
Definitions, maturities and collection dates
Match the date, currency and businesses included in each figure. Consolidated accounts combine a parent with the companies it controls; accounts for the parent alone cover a different scope. Do not divide group liabilities by parent-only equity. Also check whether debt means all liabilities or only loans, and whether equity is the closing amount. Some ROE calculations instead compare profit with average equity during a period.
Find the dates when loans must be repaid, any assets promised to support them and the conditions the borrower must meet. Check when customers are expected to pay, which bills are overdue and how quickly goods can be sold. The current/non-current split follows accounting rules, including the normal cycle of buying, selling and collecting money. This example simplifies that cycle to one year and uses the classifications stated above. It does not make all payment dates the same.
Comparisons are more informative across similar businesses and several dates. A retailer collecting cash promptly and a manufacturer waiting months for customers can operate with different working-capital needs. Seasonal stock purchases also affect a year-end snapshot. Read these balances alongside earnings, cash flows and the actual payment calendar.
About the examples
The company, reporting date, amounts, transactions and payment timings are fictional. Both language versions retain the same Korean-won figures without conversion. All transaction cases are separate alternatives to the baseline. They exclude other transactions, interest, fees, tax effects, revaluations and impairments. The credit sale has equal revenue and cost of sales and produces no profit. Reclassification changes no cash or total liabilities.
The ratios do not establish solvency, access to funding or compliance with loan covenants. This guide is not a complete financial statement or an investment recommendation. See our editorial policy.