Recently, I started looking into how banks actually assess whether a company can pay its debts, and the truth is that it all boils down to a couple of numbers that anyone can understand. The guarantee ratio is basically the tool they use to measure this, and it’s surprisingly simple but effective.

The key difference lies in the time horizon. If you’re talking about liquidity, you’re seeing whether the company survives the next 12 months. But the guarantee ratio shows you the full picture: does it have enough assets to cover ALL of its debt, no matter when it comes due? It’s the difference between having money in your pocket today versus having real equity that backs commitments in the future.

Banks know this well. When they ask you for a strong liquidity ratio, it’s because they need to be repaid quickly—typically in products such as annual credit lines or renting. But when you apply for a real loan—machinery, real estate, or an industrial lease—that’s when they require a solid guarantee ratio. They want to know that even if things get difficult, you have enough equity to stand behind your obligations.

The formula is almost ridiculously simple: total assets divided by total liabilities. That’s it. Let’s take Tesla as an example: with 82,34 billion in assets and 36,44 billion in debt, its guarantee ratio was 2,26. Quite healthy. Now compare that to Boeing in that same period: 137,10 divided by 152,95 gives 0,89. That’s a problem, because it means liabilities exceed assets.

Now, how do you interpret these numbers? A general rule is that a guarantee ratio below 1,5 is dangerous—the company is very heavily leveraged. Between 1,5 and 2,5 is normal, the range where healthy companies operate. And above 2,5 could indicate that they’re underutilizing debt—meaning they could borrow more, but choose not to.

But here’s the important part: these numbers don’t tell the whole story. Boeing was hit hard by Covid; its figures deteriorated because demand for aircraft collapsed. Tesla appears overvalued by its guarantee ratio, but that’s because the technology business model requires massive capital for research. They need to keep that equity strong because if projects fail, they can’t blame someone else’s debt.

What I learned is that the guarantee ratio works because it’s agnostic to size. You can compare a startup with Apple using the same metric without distortions. And it’s so reliable that practically every company that went bankrupt had a compromised guarantee ratio before the collapse. Revlon’s case proves it: in September 2022, it had 2,52 billion in assets but 5,02 billion in liabilities. Its ratio was 0,50. It was mathematically impossible for it to survive.

The key is not to look at just one isolated number. Combine the guarantee ratio with the liquidity ratio, look at the company’s historical trend, understand the business, and compare it with its industry. If you see the guarantee ratio deteriorating year after year, that’s your first warning. If it’s stable or improving, the company is on the right track. That’s what really matters when you’re evaluating where to invest your money.