In 2008, with stock prices fluctuating wildly (check out the CBOE Volatility Index) and "blue chips" looking somewhat less blue, the balance sheet has become more important than ever. Why? Simply put, credit is hard to come by. Scores of companies -- big and small -- use credit to finance their operations from day to day and month to month. With the credit pool drying up, those without the wherewithal on their balance sheets may find themselves in a seriously bad situation. Even solid borrowers like the State of California are finding themselves in a tough spot. The "Governator," Arnold Schwarzenegger, told the federal government that he may need up to $7 billion to run the state's day-to-day operations. But all that doesn't mean that there aren't plenty of companies out there with solid balance sheets.
Liquidity is one of the prime concerns in this shaky market. Companies that can pay for their operations with assets such as cash and cash equivalents (including money market holdings and "commercial paper") stand a much better chance of staving off our economy's current problems. General Motors ( GM) faces a major challenge as it tries to pay its bills with very little cash on its balance sheet. (Right now, only 38% of the company's obligations are covered by its liquid assets.) As a result, the company borrowed the last $3.5 billion available to it this week, and it may resort to mortgaging its headquarters to raise additional cash.