10 Balance Sheet Ratios that you NEED to know

The Balance Sheet is the most valuable financial statement…

Why? A few reasons:

→ It shows you the networth of your company

→ it gives CONTEXT. a $1m profit is impressive, till you realize $10b was invested

→ You can generate a statement of cash flows using just a balance sheet (with some
limitations)

Let’s review 10 Balance Sheet Ratios to help you get even more out of your business:

1️⃣ Debt-to-Equity Ratio

💡→ Amount of debt a company has in relation to its equity

🧮→ Total Debt / Shareholders' Equity

🧠→ The lower the ratio, the less the debt compared to equity

2️⃣ Debt-to-Assets Ratio

💡→ Amount of debt a company has in relation to its assets

🧮→ Total debt / Total Assets

🧠→ The lower the ratio, the less the debt compared to Assets

3️⃣ Equity Multiplier

💡→ Measures the proportion of a company's assets that are financed through debt versus
equity

🧮→ Total Assets / Total Equity

🧠→ A high equity multiplier means the company is relying more on debt to finance it’s assets
rather than equity

Current Ratio
4️⃣
💡→ Measures whether a company has enough short-term assets to cover its short-term
liabilities

🧮→ Current Assets / Current Liabilities

🧠→ The higher the ratio, the more current assets you have in relation to your current liabilities

Quick Ratio
5️⃣

💡→ Shows the ability of a company to meet its short-term obligations with its most liquid
assets

🧮→ (Current Assets – Inventory) / Current Liabilities

🧠→ The higher the ratio, the more liquidity your business has

Cash Ratio
6️⃣

💡→ Amount of cash and cash equivalents a company has in relation to its current liabilities

🧮→ Cash and Cash Equivalents / Current Liabilities

🧠→ The higher the ratio, the more cash you have in comparison to your current liabilities

Net Working Capital Ratio

7️⃣

💡→ Showcases the difference between a company's current assets and its current liabilities

🧮→ (Current Assets – Current Liabilities) / Total Assets

🧠→ The higher the ratio, the more current assets you have compared to your current liabilities

Total Debt-to-Capitalization Ratio

8️⃣

💡→ The total amount of debt in relation to a company's total capitalization (Debt & Equity)

🧮→ Total Debt / (Total Debt + Shareholders' Equity)

🧠→ The lower ratio, the less your business is capitalized using debt

Return on Equity (ROE)

9️⃣

💡→ Amount of net income a company generates in relation to its equity

🧮→ Net Income / Shareholders' Equity

🧠→ The higher your ROE, the better return you are getting on your equity

🔟Return on Assets (ROA)

💡→ Amount of net income a company generates in relation to its total assets

🧮→ Net Income / Total Assets

🧠→ The higher your ROA, the better your return on your assets