Testing Balance Sheet Strength

For stock investors, the balance sheet is an important consideration for investing in a company's stock because it is a reflection of what the company owns and owes. The strength of a company's balance sheet can be evaluated by three broad categories of investment-quality measurements: working capital adequacy, asset performance and capitalization structure.

In this article, we'll look at four evaluative perspectives on a company's asset performance: (1) the cash conversion cycle, (2) the fixed asset turnover ratio, (3) the return on assets ratio and (4) the impact of intangible assets.