01
Performance versus position
The P&L covers a period of time. The balance sheet is a snapshot at one moment. It answers three questions: What does the business own? What does it owe? What value is left for the owners?
02
What to look for
- Assets: cash, receivables, inventory, equipment, and other resources the business controls.
- Liabilities: payables, taxes due, credit lines, loans, and other obligations.
- Equity: the residual value built by the owners after liabilities are subtracted from assets.
- Trends: improving or weakening liquidity, leverage, working capital, and financial resilience.
03
Working capital can make growth hurt
Growth often requires the company to spend before it collects. More work may require materials, inventory, payroll, and subcontractors weeks or months before the customer pays. Revenue rises on paper while cash tightens in the bank.
That does not make growth bad. It means growth must be funded and planned. Receivable days, inventory turns, payable timing, and the cash required for each new dollar of revenue deserve leadership attention.
04
Debt amplifies the outcome
Debt can acquire assets and fund productive growth, but it also creates fixed claims on future cash. The relevant question is not whether debt is good or bad. It is whether the business can comfortably service it under realistic conditions.
Debt service coverage, maturity timing, interest rates, seasonality, and downside scenarios help the team see how much room it truly has.