Sound decisions are the key to success. A solid database, especially in the form of balance sheet ratios, is essential to accurately assess the financial health and performance of your company. Balance sheet ratios are based on balance sheet data and provide a comprehensive overview of a company’s financial position. But what exactly are balance sheet ratios and how can they help you optimize your corporate strategy and identify risks at an early stage?

In this article, we take a detailed look at the world of balance sheet ratios. You will find out which key figures are important for your company and how you can use them effectively to achieve your business goals. Our aim is to provide you with practical knowledge that you can apply immediately in your financial planning.

Read on and find out how you can keep an eye on your financial situation with the right balance sheet ratios and ensure sustainable economic success.

What are balance sheet ratios?

Balance sheet ratios are essential instruments for corporate management. They enable you to precisely analyze the economic situation of your company on the basis of balance sheet data and make well-founded decisions. As part of the balance sheet analysis, these key figures are calculated in order to assess the financial stability, profitability and liquidity of your company.

For external stakeholders such as banks and investors, balance sheet figures are of great importance as they provide a clear and transparent presentation of the financial situation and strengthen confidence in your company. Internally, they help to identify risks at an early stage and to take targeted measures to optimize the corporate strategy. Each balance sheet ratio provides specific information that is crucial for analyzing the company’s financial stability and liquidity.

Balance sheet ratios: What banks learn from balance sheet analysis

Balance sheet ratios are not only of great importance internally, but also play a decisive role for banks, which decide on the creditworthiness of your company. If you want to borrow money from a bank, these ratios are closely examined in order to assess the financial situation of your company.

Why are balance sheet ratios important for banks?

The bank is particularly interested in your company’s capital structure, liquidity and long-term debt capital. It wants to know how much equity you have, how much debt capital you are using and whether your company is able to service short-term liabilities. This information is crucial in order to assess the risk for the bank and to decide whether and on what terms a loan will be granted.

What key figures do banks analyze?

The most important balance sheet ratios used by banks include the equity ratio, the debt/equity ratio and the liquidity ratio. These ratios provide information on how solidly financed your company is, the extent to which it is dependent on borrowed capital and whether sufficient liquid funds are available to meet short-term obligations. Long-term debt capital in particular plays an important role in assessing the company’s financial stability and ability to finance long-term investments.

The role of time comparison

Not only the current status of the balance sheet ratios is relevant for the bank’s assessment, but also their development over time. Changes, such as a falling equity ratio or rising debt ratios, are critically scrutinized as they could indicate financial bottlenecks. A positive development in liquidity ratios, on the other hand, is seen as a sign of healthy corporate management.

Through a targeted analysis and optimization of balance sheet ratios, you can improve your company’s creditworthiness and be better prepared for discussions with the bank.

Important balance sheet ratios and their calculation

Equity ratio

The equity ratio shows the share of equity in a company’s total capital. It is an indicator of how independent a company is from borrowed capital and how financially stable it is. The higher the equity ratio, the more financially independent and stable the company is.

Formula:Equity ratio = equity / total capital * 100

Debt ratio

The debt ratio is the counterpart to the equity ratio and indicates the share of debt capital in total capital. A higher value indicates a greater dependence on external lenders.

Formula:Debt ratio = debt / total capital * 100

Debt-equity ratio

The gearing ratio shows the ratio of borrowed capital to equity and provides information on the extent to which a company is leveraged.

Formula: Debt-equity ratio = debt / equity * 100

Circulation intensity

The current ratio measures the share of current assets in total assets and is an indicator of a company’s liquidity and flexibility.

Formula:Current ratio = current assets / total assets * 100

Asset intensity

The asset intensity indicates the share of fixed assets in total assets and shows the extent to which the company is invested in non-current assets.

Formula:Asset intensity = fixed assets / total assets * 100

Liquidity levels

Liquidity ratios assess a company’s ability to meet its short-term liabilities. There are three degrees and their formulas:

• 1st degree liquidity: ratio of cash and cash equivalents to current liabilities.

Formula: Liquidity 1st degree = Cash and cash equivalents / Current liabilities * 100

• 2nd degree liquidity: ratio of cash and cash equivalents plus current receivables to current liabilities.

Formula: 2nd degree liquidity = (cash and cash equivalents + current receivables) / current liabilities * 100

• 3rd degree liquidity: ratio of current assets to current liabilities.

Formula: 3rd degree liquidity = current assets / current liabilities * 100

7. working capital

Working capital indicates how much capital the company has available to cover its current operating costs after current liabilities have been deducted.

Formula:Working capital = current assets – current liabilities

These key figures provide valuable insights into the financial stability and liquidity of your company and should be reviewed regularly.

Purpose and application examples of balance sheet ratios

Balance sheet ratios are necessary to analyze and evaluate the financial health of a company. They are used both for internal analysis and for communication with external stakeholders such as investors and banks.

Purpose of balance sheet ratios

Balance sheet ratios enable a detailed analysis of a company’s earnings situation and liquidity. The balance sheet ratios provide a detailed overview of the company’s financial health. They help to meet legal requirements and monitor financial stability, such as through the equity ratio.

Application examples

You can use liquidity ratios to ensure your company’s solvency, while the debt ratio shows the extent to which the company is dependent on external capital. With their help, you can improve the financial stability and efficiency of your corporate strategy.

Advantages and disadvantages

Balance sheet ratios are easy to calculate and help to identify weaknesses at an early stage. However, focusing on individual key figures can lead to other important aspects being overlooked.

By regularly reviewing your balance sheet figures, you can make informed decisions and ensure the financial health of your company.

The role of balance sheet ratios in the company

Key balance sheet figures play a central role in controlling and corporate management. They provide clear insights into the company’s financial situation and help to make well-founded decisions. By systematically analyzing these key figures, companies can identify risks at an early stage, exploit opportunities and secure their financial stability.

Important KPIs for controlling

Key balance sheet ratios include the equity ratio, the gearing ratio and the liquidity ratios. These key figures enable a well-founded assessment of the company’s financial health and form the basis for strategic decisions.

Application in practice

In practice, these key figures are used to check the efficiency of measures, for example in the area of cost reduction or securing liquidity. Corporate management is continuously improved by regularly reviewing and adjusting the key figures.

Balance sheet ratios as the key to successful corporate management

Balance sheet ratios are indispensable tools that help you assess the financial health and stability of your company and make strategically smart decisions. Each ratio provides valuable insight into the financial health and stability of the company. By regularly analyzing and interpreting these ratios, you can not only detect risks at an early stage, but also identify opportunities to sustainably strengthen your company and keep it on course for success.

Use the power of balance sheet figures to put your corporate strategy on a solid footing. We are happy to support you with our comprehensive expertise in the field of digitalization and data strategy. Our services are designed to provide you with the tools and knowledge you need to optimize your business processes and increase your competitiveness.

Now is the right time to take the next step: Contact us today and find out how we can help you get the most out of your balance sheet figures and make your company fit for the future. Let’s write your success story together!

FAQ on balance sheet ratios

What are balance sheet ratios and why are they important for my company?

Balance sheet ratios are key corporate management tools that allow you to analyze the financial health and stability of your company. They are based on balance sheet data and put various balance sheet items in relation to each other. These ratios provide clear insights into the financial situation, liquidity and profitability of your company. They are not only important for internal decisions, but also for communication with banks and investors, who decide on loans and investments on the basis of these ratios.

How does long-term debt affect my company’s balance sheet ratios?

Long-term debt capital plays an important role in assessing the financial stability of a company. It influences key figures such as the gearing ratio and the debt ratio. A high level of long-term debt can indicate that the company is heavily reliant on external financing, which increases risk, especially in difficult economic times. At the same time, however, it can also show that the company has the funds to make long-term investments, which can be crucial for growth and expansion. It is important to maintain a balance between equity and long-term debt to ensure the financial health of the company.

How can I optimize my balance sheet ratios to improve my company’s creditworthiness?

To improve your company’s creditworthiness, you should focus on optimizing your balance sheet ratios. Increasing the equity ratio by retaining profits or reducing current liabilities can reduce financial risk and increase stability. Careful management of long-term debt is also important to ensure a healthy balance between equity and debt. Regular reviews and adjustments to liquidity levels can help ensure that your company remains solvent at all times and avoid financial shortfalls. These measures strengthen the confidence of banks and investors in your company and improve your chances of obtaining favorable credit terms.