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Type of Securities Investment Strategies Fundamental Analysis Technical Analysis
Understanding Financial Statements Income Statement Analysis Balance Sheet Analysis Cash Flow Analysis Shareholders' Equity Analysis Ratios and Definitions


Balance Sheet Analysis

 - Leverage and financial
   strength affect share value

 - Liquidity concerns can
   decimate a business

 - Cash is critical, to a point
    * Window Dressing
    * Cash Gap
    * Cash Per Share
    * Burn Rate

 - Marketable Securities

 - Receivables are interwoven
    with cash flow
    * Past Dues and Write-offs
    * Receivables turnover ratios
    * Securitizations

 - Inventory - focus on the
   profit margins
    * Perpetual vs. Periodic
       Inventory
    * Inventory Accounting
       Calculation
    * Inventory Costing Methods
    * Lower of Cost of Market
    * Inventory Categories
    * Inventory Turnover Ratios

 - Fixed assets are necessary in
   order to be a world class
   company

 - Liabilities with equity attributes
   are enriching

 - Emphasizing debt net of cash
   can be misleading

 - Book value is a tool to
    properly evaluate a stock

 - Off-balance sheet assets and
   liabilities are legal

 

 


Cash is critical, to a point

Cash is critical, to a point. Operating with minimum cash is a skill few companies have, and even fewer CFO’s have the stomach for. Rumor has it that as Enron failed, their financial team had no idea how much cash they had in the bank and how much their liabilities were. It’s scary.

Many companies, moreover, are run by using their banks’ availability figures (available but unused credit lines) as their cash.

Insofar as investors are concerned, too little cash (and borrowing capacity) limits growth opportunities. This can create bottlenecks in accounting and operational departments; and can lower moral.

Too much cash, on the other hand, can invite unwelcome suitors, resulting in a significant loss of future profits for current shareholders. Owning stock in a company that becomes a buyout target is not necessarily a good thing. While the short-term increase in stock price is appreciated, good investments are hard to come by, and many may be unable to be replaced. Unwelcome suitors normally try to benefit at the expense of the old shareholders. Potential profits can be transferred from existing shareholders to the new unwelcome buyers. The suitors, In effect, are taking profits that should have belonged to the old shareholders. 

Cash, therefore, is relevant depending on which side of the transaction you are on.

Next review information on:
Window Dressing
Cash Gap
Cash Per Share
Burning Rate

 

 

 

 

 

 

 

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