This chapter is a key part of the course, as we merely focus on the company´s financial health with many important liquidity and solvency ratios. This part is a combination of theory and practice. All we examine here can be considered case studies because we applied the theory to real companies. This is one of the most interesting parts of the course. We analyzed the balance sheets of several companies, and after this chapter you will be able to do the same. This approach is easy and applicable to every company. This is the further deep dive of the previous chapter, where we examined the basics of balance sheet.
In this chapter, we’ll explain what signs individual companies should meet based on their financial situation and health. It is highly crucial. During a “tail-event,” it will be clear how important a thorough examination is. We covered the basics of the “balance sheet” and the assets, liabilities, and equity side in the previous chapters. On easy examples, we’ve shown “what it should look like” and clarified the equality requirement: A = L + E.