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The Balance Sheet

What it is

A snapshot of what a business owns (assets), what it owes (liabilities), and what's left for shareholders (equity) at a single point in time.

What to look for

  • Current ratio = current assets / current liabilities. Above 1.5 is comfortable; below 1.0 raises a red flag.
  • Debt-to-equity ratio. The right level depends on the industry, but a runaway D/E means the business is increasingly funded by lenders rather than owners.
  • Goodwill as a share of total assets. High goodwill from acquisitions can mask weak underlying earnings.

How Cowry uses it

The Quality Framework's "Financial Strength" factor scores debt/equity and current ratio together: a fortress balance sheet is D/E ≤ 0.5 and current ratio ≥ 1.5.

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