How to analyze a balance sheet

1️⃣ Working Capital

This measures a company's ability to meet its short-term obligations. A positive working capital indicates that the company has enough assets to cover its liabilities.

2️⃣ Current Ratio

This measures a company's ability to pay its current liabilities with its current assets. A ratio of 1:1 is considered ideal.

3️⃣ Quick Ratio

This is a more stringent measure of a company's liquidity, as it only includes highly liquid assets in the calculation.

4️⃣ Debt to Equity Ratio

The proportion of a company's financing that comes from debt versus equity. A high ratio may indicate that a company is taking on too much debt.

5️⃣ Debt to Assets Ratio

The proportion of a company's assets that are financed through debt. A high ratio may indicate that a company is taking on too much debt.

6️⃣ Asset Turnover Ratio

This measures a company's ability to generate revenue from its assets. A higher ratio indicates more efficient use of assets.

7️⃣ Return on Assets (ROA)

The efficiency with which a company generates profits from its assets. A higher ROA indicates that the company uses its assets more effectively.

8️⃣Return on Equity (ROE)

The profitability of a company in relation to the equity invested in it. A higher ROE indicates that the company generates more profits for its shareholders.

9️⃣ Days Sales Outstanding (DSO)

The average number of days a company takes to collect payment from its customers. A lower DSO indicates a more efficient collection of accounts receivable.

🔟 Inventory Turnover Ratio

The speed at which a company sells its inventory. A higher ratio indicates that the company is efficiently managing its inventory and generating sales.