Guarantee Coefficient: The Metric That Separates Solid Companies from Those That Go Bankrupt

The Indicator Banks Obsess Over

Have you ever wondered why banks ask for certain numbers before granting you a loan? Everything revolves around the guarantee ratio. This indicator measures something seemingly simple but brutally effective: can the company pay all its debts?

While other ratios focus on whether a company survives the next month, the guarantee ratio shows you the full picture. It’s the difference between having money in your pocket now and having enough resources to weather the financial storm.

What Does This Number Really Mean?

The guarantee ratio answers a fundamental question: if you liquidated all the assets of a company, would it be enough to pay off all its debts? It’s not complicated. The formula is straightforward:

Guarantee Ratio = Total Assets ÷ Total Liabilities

Assets include everything the company owns: cash, machinery, properties, investments. Liabilities are all its obligations: loans, accounts payable, bonds.

The beauty of this guarantee ratio lies in its simplicity. You don’t need to be an accountant to understand it. Take two numbers from the balance sheet and divide. Done.

When Do Banks Ask for This Number (And When Not)

Banks are not all the same in their requirements. When you apply for a revolving credit line, they focus on your monthly repayment capacity (the liquidity ratio). But when you want a long-term loan to buy machinery or industrial property, they need to be sure your company will still exist in 5, 10, or 15 years.

If you request factoring, confirming, or industrial leasing, the bank requires a robust guarantee ratio. Why? These products commit you long-term, and they need to sleep peacefully.

How to Interpret the Number: What It Really Means

Less than 1.5: Dangerous territory. The company is loaded with debt. Assets barely cover liabilities. High risk of collapse.

Between 1.5 and 2.5: The comfortable zone. Companies here have a balanced financial structure. Banks sleep soundly. Investors too.

Above 2.5: There are two interpretations. It could mean the company is very conservative (good), or that it’s leaving money on the table without investing enough in growth (less good). It’s like having too much mattress under the bed.

Numbers Don’t Lie: Real Cases

Tesla showed a guarantee ratio of 2.259 (assets of $82.34 billion, liabilities of $36.44 billion). A company that invests aggressively in technology but maintains financial muscle.

Boeing had a ratio of 0.896 (assets of $137.10 billion, liabilities of $152.95 billion). Liabilities exceed assets. It’s no surprise they went through severe crises.

Revlon, the cosmetics company, hit the brink with a guarantee ratio of 0.5019 in September 2022. It only had $2.52 billion in assets against $5.02 billion in debts. Six months later, it went bankrupt. The numbers had sung the funeral song.

Why This Indicator Works Better Than You Think

The guarantee ratio has practical virtues that other indicators envy:

• Works at any size: The same applies to startups and megacorporations. The number doesn’t distort.
• Accessible to anyone: You don’t need an MBA in finance. The data is public.
• Predicts bankruptcies: Every major company that went bankrupt had this number compromised months before. It’s an alarm that sounds before collapse.
• Combine it with other ratios: If you mix it with the liquidity ratio, you get an almost complete picture of financial health.

The Trap: Don’t Confuse Sector with Insolvency

Tesla appeared overvalued because its guarantee ratio is high. But that’s correct for a tech company. Research and development require constant investment. Better that the capital comes from shareholders rather than creditors.

Boeing, on the other hand, had structural problems. Its sector should allow for more conservative ratios. When it collapsed, it was because something was fundamentally broken.

The lesson: always contextualize. Look at the company’s history, compare it with its sector, understand its business model. The guarantee ratio is a symptom, not a complete diagnosis.

The Uncomfortable Truth

The guarantee ratio is one of those tools that works because it reflects harsh economic realities. A company with debts exceeding its assets cannot exist indefinitely. Arithmetic doesn’t negotiate.

To invest wisely, you need to observe how this ratio evolves year after year. Is it improving or worsening? Is it moving within normal ranges or in the red zone? Combine this with liquidity analysis and you’ll have a reliable investment compass.

The guarantee ratio isn’t glamorous. It doesn’t make headlines. But it’s exactly the boring number that separates winning investors from those who lose everything.