As you know, there is a lot of debt in our country and at all levels. Many credit card companies offer large amounts of credit to consumers so long as a relatively small minimum payment is made each month.

Our nation is on its way to seeing 18 trillion dollars of national debt as the debt clock spins and spins onward and ever upward. Even though awash with debt, we are managing it seems, for the time being, by making our (minimum) required interest payments on the growing debt, even if we have to keep the money printing press working around the clock to sustain and push our economy forward.

Our stock market today reveals many, many companies heavily levered financially, yet generating strong cash flow from operations sufficient to make interest payments timely and even throw off large dividend checks to owners. Interest rates are so low that growing debt levels seem justified based on the money that can be generated from that so-called cheap capital. The thinking goes on that even when the debt principal matures, it can just be rolled over (re-financed) with new extended maturities.

Will the debt ever come due then and is it a genuine risk? Or is financial health really as simple as just making the minimum interest payments on time while rolling over the debt maturities as needed?

Where is the use of financial leverage by corporations revealed? The earnings report (Income Statement)? No. The centerpiece of my book, “Choose Stocks Wisely,” is that the Balance Sheet is the only financial report to reveal the present financial standing of a company. As such, it is the revelation report for whether assets are being levered to the hilt in order to derive larger and larger earnings. As growth is pursued at all costs, a company’s liquidity position and its solvency position will become compromised. Parts  A and B of my Scorecard exist to test for these aspects relative to analyzing balance sheet health.

My whole balance sheet approach to investing expresses my personal belief that debt does ultimately have to be settled. Leverage may work when growth is going okay. However, when the cash stops flowing so well, leverage works as strongly against you as it does for you. We witnessed what can happen during 2008 and 2009.

I like a company I own to grow its profits just as much as the next person. However, I don’t want to risk the farm so to speak to gain those profits. I don’t want to be in the position of cutting things so close that I’m making the next day, financially speaking, by making the minimum required payment on time. No investment appeals to me where the health of the company’s financial position is questionable; I don’t care how much money it’s pulling in for the moment. I want to see that balance sheet!