Break free from financial blind spots: Quickly identify business risks using the ratio de garantía formula

I’ve seen too many investors fall into the trap of a company’s collapse on the eve of bankruptcy without realizing it, simply because they can’t read financial data. Today, we’ll start with a neglected but extremely critical indicator—ratio de garantía—and teach you how a simple fórmula can help you identify a company’s financial trap in advance.

Seeing Through the True Power of ratio de garantía with a Case Study

At the end of 2022, the cosmetics giant Revlon suddenly collapsed. Its assets were only $252 million, while its debts had ballooned to $502 million. According to the ratio de garantía fórmula: 252 ÷ 502 = 0.5, this number is already screaming “danger.”

In comparison, Tesla’s ratio de garantía reached 2.259 at the same time, while Boeing was at 0.896. Three companies, three fates—that’s the story ratio de garantía wants to tell us.

What exactly does ratio de garantía measure?

Simply put, ratio de garantía is the company’s “overall debt repayment ability score.”

Many people tend to confuse it with the ratio de liquidez (liquidity ratio). The difference is:

• ratio de liquidez: only looks at short-term (within 1 year) “emergency funds”
• ratio de garantía: considers long-term (including all debts) “sufficient assets to repay debts”

A company might have enough cash on hand and look healthy short-term; but if long-term debts are pressing and assets are shrinking, that’s “false prosperity”—which is the true revelation of ratio de garantía.

One fórmula is enough

The fórmula for ratio de garantía is extremely simple:

Ratio de garantía = Total Assets ÷ Total Debts

Taking Tesla as an example:

• Total Assets: $82.34 billion
• Total Debts: $36.44 billion
• ratio de garantía = 82.34 ÷ 36.44 = 2.259

For Boeing:

• Total Assets: $137.1 billion
• Total Debts: $152.95 billion
• ratio de garantía = 137.1 ÷ 152.95 = 0.896

The investment logic behind the numbers

Calculating ratio de garantía with the fórmula is just the first step; the key is understanding what this number indicates:

ratio de garantía < 1.5: Warning sign The company’s debt load is severe. Taking Revlon’s 0.5 as an example, each dollar of debt is backed by less than 0.5 dollars of assets—an extremely risky financial leverage. Such companies are either on the brink of bankruptcy or already on the path to it.

ratio de garantía between 1.5 and 2.5: Healthy zone Most well-run companies fall within this range. It indicates the company has enough assets to cover its debts, and its debt structure is relatively reasonable.

ratio de garantía > 2.5: Needs deeper analysis At first glance, this seems good, but it often means the company has either an unreasonable asset structure (too many idle assets) or is severely undervaluing its financing capacity (poor capital utilization). Tesla falls into this range, but it’s not a problematic company—instead, as a tech company, it naturally requires high asset reserves to support R&D.

Why do banks value the fórmula of ratio de garantía so much?

Financial institutions, when deciding whether to lend, weigh two indicators based on the loan term:

Short-term loans (within 1 year) → look at ratio de liquidez

• Credit lines, commercial discounts, leasing products, etc., focus on “can you pay me back this month?”

Long-term loans (over 1 year) → look at ratio de garantía

• Machinery loans, mortgage loans, industrial leasing, etc., require a stable ratio de garantía
• Because if the company encounters difficulties, only sufficient total assets can ensure creditors’ interests aren’t lost

Historical review: Why can the ratio de garantía of the same company vary greatly?

Boeing’s ratio de garantía before the pandemic was much better than the current 0.896. During the pandemic, aircraft orders plummeted, revenue sharply declined, but debts increased (to survive, they had to borrow). As a result, assets shrank, debts grew, and the ratio de garantía naturally worsened.

This shows that looking at only one year’s ratio de garantía is not enough; you must analyze the 5-10 year trend. A continuously declining ratio de garantía is more alarming than any warning system.

The three practical values of ratio de garantía

1. Bridging company size differences Whether a startup or a giant enterprise, the fórmula of ratio de garantía applies, allowing fair comparisons across different scales.

2. Identifying bankruptcy precursors Historical data shows that all bankrupt companies experience a significant deterioration in ratio de garantía 6-12 months before collapse. This indicator has a very high predictive accuracy.

3. Spotting short-selling opportunities When combined with ratio de liquidez, if both indicators deteriorate simultaneously, it’s a high-probability short target. Revlon’s case is exactly that—both indicators failed, and collapse became inevitable.

Investor traps to be aware of

While ratio de garantía is very useful, it has limitations:

• Industry differences: Tech companies naturally need high asset ratios (to support R&D), so standard metrics from manufacturing may not apply
• Accounting manipulation risks: Companies can beautify ratio de garantía through revaluing assets, related-party transactions, etc.
• Different accounting standards: US GAAP and international IFRS have different asset recognition standards, so data from the same company can vary greatly

Therefore, although the fórmula of ratio de garantía is simple, its interpretation must be combined with the company’s specific situation, historical performance, and industry characteristics.

Final words

ratio de garantía is like a company’s “health check report.” A good ratio de garantía indicates the company can weather storms; a bad one signals a countdown.

Next time you evaluate an investment target, don’t just watch the stock price fluctuations—spend two minutes calculating this ratio de garantía with the fórmula, and you’ll be able to see the company’s true condition earlier than 90% of retail investors. Just like what the Revlon case teaches us—financial data doesn’t lie; it’s whether you can read it.