In this article we will point out some of the things your statements are trying to tell you. The ratios tell the story. The ability to pay your bills as they come due. A prospective buyer looks for solvency. The ability to withstand adversity.
All businesses face adversity.
Competition, weather, sales downturns, labor unrest, sudden cost increases, death and disability occur in all companies. The relationship between your debt and your equity determines your ability to overcome adversity. If you have excessive debt in relation to your own equity, you have little chance of weathering the storm. If none of these methods looks practical, the only other way to increase equity is to make more net profit and keep more of it in the company. This brings us to the Income Statement.