I’ve noticed that many investors don’t truly understand how to evaluate a company's financial health. They talk about ratios, numbers, but don’t know what to look for. Well, there’s one that’s absolutely key: the guarantee ratio.

This indicator tells you if a company has enough assets to cover all its debts. Period. It’s not complicated, but it’s powerful. While other ratios show if the company can pay in the short term, the guarantee ratio gives you a complete, long-term view.

The formula is simple: total assets divided by total liabilities. That’s all. If Tesla has $82 billion in assets and $36 billion in debts, its guarantee ratio is 2.26. Boeing, on the other hand, had $137 billion in assets but $153 billion in debts, a ratio of 0.89. Do you see the difference? Tesla is in a strong position, Boeing was in trouble.

Now, what numbers are good? Generally, you want the guarantee ratio to be between 1.5 and 2.5. Below 1.5, the company has too much debt and a risk of bankruptcy. Above 2.5, it could be inefficiency, too many unused assets.

But here’s the important part: don’t take these numbers at face value. Revlon is a perfect example. A few years ago, its guarantee ratio dropped to 0.50. Its assets barely covered half of its debts. It was obvious something was wrong. And, of course, it went bankrupt shortly after.

What you really need to do is combine the guarantee ratio with the business context. A tech company needs financing for research, so it can have higher ratios. A traditional manufacturer should be more conservative. The sector matters.

My advice: check the guarantee ratio of the companies you invest in, but don’t do it in isolation. Compare it with previous years, with its competitors, with the industry average. That will give you a clear picture of whether you’re dealing with a solid company or one at risk.