stock-balance-sheet-review

name	stock-balance-sheet-review
description	Review a US-listed company's balance sheet health for an equity-research workup. Covers net-debt/EBITDA leverage, current ratio, cash runway, goodwill concentration and impairment history, DSO trend, inventory days, off-balance-sheet items (operating leases, contingent liabilities), and pension underfunding. Trigger when analyzing financial-statement risk at L4 of the seven-layer X-ray framework, or when assessing whether the company can survive a downturn. Dispatched by stock-analysis-lead.
allowed-tools	Read, Grep, Glob, WebSearch, WebFetch, Bash

Stock Balance Sheet Review

Purpose

Read the balance sheet for survivability. Most retail investors ignore the balance sheet until a recession exposes the leverage they didn't price in. Surface leverage and liquidity risks, goodwill bombs from past M&A, working-capital deterioration that signals customer-credit pressure, and off-balance-sheet hooks that compound in stress. Output a structured Findings set with quantitative thresholds.

When To Use

• Orchestrator dispatches balance-sheet review (always-on in Standard / Strict depth).
• User asks "is financially safe", "what's the debt situation", "can survive a recession".

When NOT To Use

• Earnings quality / cash flow → stock-earnings-quality-review
• Business model → stock-business-review
• Capital allocation history → stock-management-review
• Competitive position → stock-industry-review

Mandatory Gates

1) Execution Integrity Gate

Read the balance sheet from the most recent 10-Q (more recent than 10-K). If only 10-K is available, note the date staleness in Execution Status.

2) Industry-Norm Gate

Leverage tolerable for a utility is catastrophic for SaaS. Identify sector before applying thresholds. Default thresholds below are general; flag if your sector materially shifts them.

3) Off-Balance-Sheet Gate

Read the "Commitments and Contingencies" footnote in every review. Operating leases were brought on-balance-sheet by ASC 842 (2019), but contingent liabilities, guarantees, and purchase obligations are still footnote-only.

4) Goodwill-History Gate

A single goodwill impairment is a yellow flag; multiple is a red flag indicating chronic overpayment in M&A. Check 5-year impairment history, not just current year.

5) First-Hand Data Gate (mandatory)

Cite debt, cash, lease, pension, goodwill, AR and contract-liability figures from the manifest's first-hand financials.json (SEC EDGAR XBRL, via scripts/finlib/edgar.py) or directly from the filing — never from a search snippet. Any leverage ratio you state (Net Debt/EBITDA etc.) must use the named-input formulas in scripts/finlib/ratios.py so it survives the orchestrator's 口径 lint gate; in particular EV-based metrics require total_debt and cash_and_sti (a net-cash company has EV below market cap). Tag any second-hand figure as such and lower confidence accordingly.

Workflow

1. Load 10-Q balance sheet and 10-K notes (Commitments, Goodwill, Pension).
2. Run filing-pattern-gated scan.
3. Compute ratios: Net Debt / EBITDA (using TTM EBITDA from financial-history), Current Ratio, Goodwill / Total Assets, DSO, Inventory Days.
4. Compare to industry norms and to the company's 5-year history.
5. Emit Findings.

Filing-Pattern-Gated Execution Protocol

Execution Order

1. Locate balance sheet (10-Q latest), Goodwill note, Commitments note, Long-term debt note.
2. For each checklist item, locate the specific line/note.
3. HIT → compute ratio, compare to threshold, semantic-confirm.
4. MISS → mark NOT FOUND.
5. Report only Findings that breach thresholds OR show adverse trend.
6. Include Filing pre-scan: X/Y items hit, Z confirmed.

Balance Sheet Checklist (9 Items)

ID	Item	Filing Section	Threshold
BS-01	Net Debt / EBITDA	Long-term debt + Current portion − Cash; TTM EBITDA	Flag > 2× general; sector-aware (utility OK at 4×, SaaS bad at 2×)
BS-02	Current Ratio	Current Assets / Current Liabilities	Flag < 1.0 (liquidity strain); < 1.5 in cyclical industries
BS-03	Cash runway (unprofitable cos)	Cash / annual opex (or annual FCF burn)	Flag < 12 months — must refinance or issue equity
BS-04	Goodwill / Total Assets	Balance sheet Goodwill / Total Assets	Flag > 30% — acquisition-driven; vulnerable to impairment
BS-05	Goodwill impairment history	5-year notes "Goodwill impairment"	Flag > 0 impairments in 5y as yellow; > 1 = red
BS-06	DSO (Days Sales Outstanding) trend	AR / (Annual revenue / 365), 3-year trend	Flag rising > 10 days YoY without explanation in MD&A
BS-07	Inventory days trend (non-tech)	Inventory / (Annual COGS / 365)	Flag rising > 15% YoY (slowing sell-through / obsolete inventory risk)
BS-08	Off-balance-sheet items	"Commitments and Contingencies" note	Flag material guarantees, purchase obligations, or contingent liabilities
BS-09	Pension underfunding	Pension footnote (defined-benefit only)	Flag underfunded amount > 5% of market cap

Severity Rubric

• High: Survivability-threatening. Net Debt/EBITDA > 4× in cyclical sector; cash runway < 6 months; goodwill > 50% of assets; multiple recent impairments.
• Medium: Adverse but manageable. Leverage rising; DSO trending up; contingent guarantee material but defined.
• Low: Watch-list. Inventory days slightly elevated; pension modestly underfunded.

Evidence Rules

• Compute the ratio yourself; cite the source lines.
• Include the threshold you're comparing against (general or sector-specific).
• Trends: cite at least 3 years of values, not a single snapshot.

Output Format

Findings

[High|Medium|Low] Short Title

• ID: BS-NN
• Citation: balance sheet line / note, with periods
• Evidence: computed ratio + threshold + trend
• Implication: what this means under stress

Suppressed Items

Execution Status

Filings reviewed: 10-Q (Q3 2025), 10-K (FY2024) for footnotes
Filing pre-scan: 9/9 items hit, 2 confirmed as findings
Industry norm applied: <sector>

Summary

One line: N High / M Medium / K Low — most material: <BS-NN short title>.

No-Finding Case

No balance-sheet findings — leverage moderate, liquidity ample, no goodwill concentration.
Notable positives: Net Debt / EBITDA = 0.4×; Cash > Total Debt.

Load References Selectively

• references/balance-sheet-red-flags.md — load when assessing goodwill concentration, off-balance-sheet items, or pension liabilities; contains the sector-norm leverage table, historical examples of goodwill bombs, and the Commitments-and-Contingencies decoding guide.

Review Discipline

Balance sheet failures are slow until they're sudden. A leveraged company looks fine in a bull market and dies in a recession. Be unforgiving on High thresholds; the orchestrator will weight these heavily in the Bear scenario.