Becoming Lean

Steverman, B. (2010). Corporate balance sheets show surprising strength. Retrieved March 24, 2010 from: http://www.businessweek.com/investor/content/mar2010/pi20100322_127641.htm

This article is published on the businessweek.com Web site and reports that many firms are successfully shedding debt and other obligations to put themselves in good position to deal with the economy as it changes. The author states that stronger corporate balance sheets stand out when government and consumer finances remain shaky. At the same time, many companies have taken the opposite stance and had taken on more debt; the S&P 500 companies are split in half as to which direction they have gone. The companies that are shedding debt are positioning themselves to be able to concentrate on becoming more focused on their primary products or services, or could also be putting themselves in position to expand through acquisitions or make other strategic moves when the opportunity arises. Time Warner’s CFO, John Martin, states that their newly improved balance sheet, which gives them financial flexibility, is a “strategic asset”. The importance to managers is that cash flow and cash on hand is a very important asset. It is important for all businesses to use a certain amount of leverage to grow their business but it is also important to have enough cash to make financial moves when the opportunity arises and to also be able to fund the company during the tough times.