Understanding the Financial Health Indicator
The Financial Health indicator evaluates a company's balance sheet strength. Strong financial health means the company can withstand downturns without cutting dividends.
What It Measures
- Current Ratio: Ability to pay short-term obligations
- Debt/Equity Ratio: Level of leverage used
- Liquidity Flag: Whether current ratio meets minimum threshold
- Leverage Flag: Whether debt levels are concerning
How to Read the Status
| Status | Typical Values | Meaning |
|---|---|---|
| 🟢 Good | CR ≥ 1.5, D/E ≤ 0.5 | Strong balance sheet — ample liquidity, low leverage |
| 🟡 Neutral | CR ≥ 1.0, D/E ≤ 1.0 | Adequate financial position |
| 🔴 Bad | CR < 1.0 or D/E ≥ 2.0 | Concerns — high leverage or weak liquidity |
Why It Matters
High debt means more interest payments and less cash for dividends. During recessions, leveraged companies often cut dividends to preserve cash for debt service.
What to Do
- Good: Strong foundation for dividend sustainability.
- Neutral: Manageable but monitor for changes.
- Bad: Dividend may be at risk if economic conditions worsen. Consider the reason for high debt.