For years investors have been concerned that Chesapeake Energy Corporation's (NYSE:CHK) balance sheet would be the downfall of its stock. The biggest concern investors have with the company is the debt carried on the balance sheet, which it piled on to fund its growth early in the shale boom. With that in mind, let's take a closer look at that balance sheet to see if the company has made enough improvements to alleviate these concerns.

The numbers that matter
A balance sheet is broken into three parts: assets, liabilities, and equity. We'll start at the top and check out Chesapeake Energy's assets.

Source: Chesapeake Energy Corporation 10-Q for the second quarter of 2014. 

Here, we see that Chesapeake Energy has current assets of $4.4 billion and total assets of $41.1 billion. If there is one number that sticks out it's cash, which totaled almost $1.5 billion and is $600 million higher than just six months ago.

Also noteworthy is the fact that the company's total assets are down nearly $700 million. However, the company's oilfield service assets went from $2.2 billion to zero as Chesapeake Energy completed the spinoff of Seventy Seven Energy (NASDAQOTH:SSEIQ) right at the end of the quarter. So, adjusting for that, total assets have risen by around $1.5 billion in the past six months, meaning the asset side of the balance sheet is heading in the right direction.

Now, let's take a closer look at the liability and equity side of the ledger.

Source: Chesapeake Energy Corporation 10-Q for the second quarter of 2014. 

What stands out here is the big reduction in long-term debt, as it's down by over $1.3 billion in just six months. We know that a big chunk of that debt went with Seventy Seven Energy, but part of the purpose of that spinoff was to reduce debt at Chesapeake Energy, so that's not a surprise.

Overall, the company has reduced its leverage in order to improve its financial security. As the following slide from a recent investor presentation notes, Chesapeake Energy has really improved its balance sheet over the past two years, not just in terms of reducing debt but in reducing the overall complexity of its balance sheet.

Source: Chesapeake Energy Corporation Investor Presentation 

What does Chesapeake Energy Corporation's balance sheet tell us?
Clearly, Chesapeake Energy's balance sheet is improving. However, the company still has some work to do. For example, the company's quick ratio (current assets excluding inventory/current liabilities) is 0.75, which is a vast improvement from 2012 when the company's quick ratio was a worrisome 0.47. Still, its current quick ratio is a bit below the industry average of 0.80, which isn't a great number as anything below 1.0 tells us that a company doesn't have enough cash and liquid assets to cover its short-term debt liabilities. What it's really telling us is that Chesapeake Energy would have a harder time covering its liabilities if energy markets crashed than its stronger peer ConocoPhillips (NYSE:COP), which for example sports a 1.08 quick ratio.

Meanwhile, Chesapeake Energy's net debt-to-total capitalization ratio is 36%. That's higher than stronger peers EOG Resources (NYSE:EOG) and ConocoPhillips, which have strong net debt to total capitalization ratios of just 22% and 18%, respectively. That being said Chesapeake Energy is improving this ratio, as it was as high as 43% at the end of 2012.

Investor takeaway
No matter where we test the balance sheet we find the same thing. The company's balance sheet has improved from its complex mess of just a few years ago, though it's not yet as strong as some of its more oil focused peers.