Thursday, August 19, 2010

"No lollipop please!" (Understanding Balancesheet-II)

If you are an Investor

who is about to invest hard-earned money in a company

would you be interested in the lollipop talk of the company or its advertisers or agents?

or

would you be interested to know

* How much cash the company has? Is it too less? Why? Consequences? Is it too much? Why? Consequences?

* How much money it is due to receive including credit? Is it too high? Why? Consequences?

* How much bad loan it is carrying? Why? Consequences?

* How much inventory it is carrying? Why? Consequences? What is its Inventory Turnover (cost of goods sold divided by average inventory)? Why? Consequences?

* What is the cost of fixed assets (property,plant, equipment etc.) it has? Market value? Replacement Value? Implications? What portion can act as buffer for any contingency? Is the value of the fixed assets correctly assessed? Why? consequences?

* What are its short-term liabilities? Why? How much? Consequences? How manageable these are?

* What are its long-term liabilities? Why? How much? Consequences? How manageable these are?

* How manageable these are?

* Are these less than or more than the cash flows? Consequences? What is the companies Quick Ratio (current assets without inventory divided by current liabilities)? Consequences?

* Are these less than or more than the assets? Consequences?

* Are total assets of the company more or less than the total liabilities? Why? Consequences?

* What intangible assets (like patents, trademarks, copyrights, technology, processes, brands etc.) does the company have?

If you are interested in the answers to the above questions before you write the cheque, you are within your rights and wisdom.

Where to find all this info?

Balance Sheet!

Do you need a Accountant to understand it?

If you have a good one whose abilities you trust, then great!

Otherwise, it is easier than learning to ride a bicycle

provided you have fun playing with it!

Reading a balance sheet is like playing hide and seek! A treasure hunt game!

The real info is hidden somewhere there!

One of my friends doesn't solve crossword puzzles!

Instead, he amuses himself by reading one balance sheet with evening tea everyday!!

There are plenty available on the net!!!

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