Balance Sheet Strength vs Income Stability: Leverage vs Profitability (D/A vs ROA)
Mayerli Marin
Co-Presenters: Individual Presentation
College: College of Business and Public Management
Major: BS.MANAGEMNT-GENBUS
Faculty Research Mentor: Yan, Claire
Abstract:
Title: Balance Sheet Strength vs. Income Stability: A Review of Solvency and ProfitabilityAuthor: Mayerli Marin, Undergraduate Student, Management-General Business, Kean UniversityAbstract:Financial stability is an important factor in evaluating a company’s long-term performance, particularly in industries characterized by high competition such as the retail sector. This study examines the relationship between balance sheet strength and income stability, focusing on whether companies with stronger balance sheets—defined by higher equity levels and lower reliance on debt—exhibit more stable net income over time. The purpose of this research is to review solvency and profitability measures and assess how capital structure may influence financial performance.The analysis focuses on four major retail companies: Costco Wholesale Corporation, Walmart Inc., Amazon.com, Inc., and BJ’s Wholesale Club Holdings, Inc. Publicly available financial data are collected from each company’s annual reports (Form 10-K), including balance sheets, income statements, and statements of shareholders’ equity. The study covers multiple years and uses Microsoft Excel to compute key financial ratios, such as the debt-to-asset ratio, equity ratio, return on assets (ROA), and return on equity (ROE). Line charts and scatter plots are used to visually compare leverage and profitability across firms.The anticipated findings suggest that firms with higher leverage tend to experience greater volatility in net income, while companies with stronger equity positions may demonstrate more stable profitability, reflected in steadier ROA and ROE. Overall, this study aims to highlight how balance sheet composition can affect income stability and provide insights into the role of solvency and profitability in evaluating financial performance within the retail industry.Keywords: Balance Sheet, Income Stability, Solvency, Profitability, Retail Industry