Strong Balance SheetWhen the economy hits the gutters, corporate revenues, and thus profits, typically decline for the majority of businesses. In this scenario, it is important that the company is not carrying too much debt, as debt servicing costs remain relatively constant. A company with minimal debt can attack its operating costs and survive the downturn, but a company loaded with debt will be forced to divert a bigger and bigger slice of the shrinking revenue pie towards servicing that debt.
In the worst of scenarios, the company could even declare bankruptcy, which would wipe out shareholders.
There remain 4 companies in the entire United States with top tier credit ratings, AAA, which makes them more credit worthy than the US government. They are:
- Exxon Mobil
- Automatic Data Processing (ADP)
- Johnson & Johnson
There are many other companies with strong balance sheets. It is easy to look for them by filtering with debt/equity ratio.