Balance sheet health: debt, interest cover and cash flow

Why does the balance sheet matter?

Profit tells you how a company did this year. The balance sheet tells you whether it can survive a bad one. Companies rarely fail because of one weak quarter; they fail because they cannot pay what they owe.

Checking debt and cash flow takes a few minutes and removes a large share of avoidable risk.

What is a good debt-to-equity ratio?

Debt-to-equity divides borrowings by shareholders' funds. A ratio of 0.5 means the company owes 0.50 for every 1.00 of its own capital.