Borrowing and Investments

We at Sure Capital love the book Romancing The Balance Sheet by Dr. Anil Lamba. In a simple way, the author teaches about good financial management. Here are a few insights from the book

1. Are companies utilising the right borrowings for procuring the right assets?

2. Why do many companies fail though they have a very good business model?

This is one of the common mistakes many companies do. There are three types of balance sheets.

Type - 1 This seems like a perfect one because long-term assets have been used for long-term liabilities and short-term assets have been used for short-term liabilities. But it is not the healthiest balance sheet. Because inventory is also part of Short term assets and can’t be liquidated immediately. Thus, in this case, the current ratio is 1:1

Type 2: In this case, short-term assets have been used to procure long-term liabilities. Thus leaving a very little amount for working capital. In this case, there is a lot of changes a company might face a working capital shortfall. Current ratio - 0.5:1. which is very unhealthy.

Type 3: Among all three types, this is considered to be a healthy balance sheet. The business can repay its creditors without liquidating its entire inventory. It can carry on its operations in a very healthy way without facing any cash crunch. Thus having a CURRENT RATIO of 2:1. This is one of the very important aspects to follow while managing your company.

To learn more about financial support, private financing and short term loans, reach out to us at surecapitalindia@gmail.com or call us at +91 8098223866