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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

 

 

 


Inventory Accounting Calculation

The accounting calculation to value inventory and cost of sales is as follows:

Beginning inventory

Plus: Purchases (material, labor and overhead)

Equals: Cost of goods available for sale

Less: Ending inventory

Equals: Cost of goods sold.

I have included this basic accounting concept, since many companies have automated systems that blur accounting theory and practice. Automation makes it difficult for auditors, accountants, and investors to follow and understand inventory concepts. This is the age-old argument of the drawbacks of automation. The accounting craftsmen and their knowledge are disappearing with the automation of the accounting process. This lack of inventory knowledge is being compounded by the U.S. moving more and more towards a service economy, with manufacturing jobs being sent overseas to places like China. Investors, however, need to understand the nuances of inventory to avoid panic situations, or to benefit from them, if inventory issues arise. 

In the recent past, I attended a SEC reporting seminar in New York City. The instructor surveyed the class as to how many attendees currently worked for manufacturing companies. Only a colleague and I were involved in manufacturing. My interpretation of the situation was:  as the manufacturing jobs leave the country, the knowledge leaves with it.

Click here for information on:
-Focus on the Profit Margins
-Perpetual vs. Periodic Inventory
-Inventory Costing Methods
-Lower of Cost or Market
-Inventory Categories
-Inventory Turnover Ratios

 


 

 

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