Balance Sheet Health Check

When to use

Use whenever the balance sheet needs a health read — before a lender conversation, a board update, or simply as a standing check — especially replacing a ratio dump with no benchmark comparison and no sense of which ratio, if flagged, actually deserves the most attention.

What it does

Computes the standard liquidity ratios (current, quick, cash) and solvency ratios (debt-to-equity, debt-to-EBITDA, interest coverage) via a bundled calculator, compares each against a stated healthy benchmark range, and prioritizes the flags: interest coverage and leverage ratios get treated as the most urgent, since they measure whether the business can actually service its debt, while a low cash ratio alone is flagged as common and not automatically alarming if the current and quick ratios are healthy.

Method

1. Gather the balance sheet inputs: current assets, current liabilities, inventory, cash, total debt, total equity, plus EBITDA and interest expense from the income statement for the solvency ratios.
2. Run the bundled calculator (scripts/bs_health.py) to compute all six ratios and compare each against a stated healthy range.
3. Read liquidity ratios together, not individually. Current ratio, quick ratio, and cash ratio measure decreasingly liquid slices of the same question; a low cash ratio with healthy current and quick ratios usually just means liquidity relies on receivables and inventory rather than cash on hand, which is normal for many businesses, not a crisis on its own.
4. Treat interest coverage as the most urgent solvency flag if it appears — it directly measures whether operating earnings can service the debt currently owed, a more immediate concern than a leverage ratio being somewhat elevated.
5. Cross-check leverage ratio flags against any actual covenant thresholds the business has agreed to, separately from the generic benchmark range used here — a covenant-specific threshold is the real constraint, this benchmark is a general health check.
6. Track the ratios over time, not as a single snapshot — a ratio drifting toward the edge of its healthy range over several periods is a trend worth addressing before it actually breaches, which a single-period check won't show.
7. Use the verdict to prioritize follow-up, not to declare a final judgment — a flagged ratio is the start of an investigation into the specific driver behind it, not the end of the analysis.