Small business writers and researchers often base their analysis on the assumption that small businesses are undercapitalized and have low liquidity. Surprisingly few researchers have addressed this issue even though these assumptions permeate the literature. Using data from Robert Morris and Associates’ Annual Statement Studies for 86,000 firms in 343 industries over five years, we show that small firms have higher debt ratios than larger firms. Comparisons of the liquidity ratio and profitability ratio between large and small firms yield mixed results, which is at variance from past research.
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