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As I'm watching the coronavirus-induced market meltdown, the one thing that is abundantly clear is that balance sheet strength is once again emerging as a key determining factor as to which companies will survive and ultimately thrive.

Right now, not only has the stock market fallen hard, but the bond market is showing signs of stress, too. Every trading day, my broker sends me emails with the bonds I own that have had major price changes. Recently, I've been getting several a day, virtually all pointing in the down direction. That's despite promises of liquidity from the Federal Reserve and overall interest rates near all time lows. Every bond I own was investment grade when I purchased it, though at least one (of a natural gas energy producer) has been downgraded due to persistently low natural gas prices.

That's a sign that financing is drying up, and companies that don't have the balance sheet strength to make it through a period without ready access to capital are more likely to either have to accept unfavorable terms or face a default, even if they could otherwise have survived.

Stay careful out there, my Foolish friends, and keep an eye on the balance sheets of any company you're invested in.

Discovery/HR Home Fool
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