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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

 

 


 Securitizations

Securitizations is the method by which companies take illiquid assets, in this case receivables, turn them into marketable securities, and sell them to a third party for cash. The receivables and associated debt are transferred to an off-balance sheet subsidiary. The originating company, in most cases, continues to collect the receivables and forwards the interest and principle payments, when collected, to the buyers (usually insurance companies or banks). Some of the newer type structures allow for additional receivables to be added to the credit facility as sales occur.

Investors should be concerned with these structures. If the receivables go bad, beyond the built-in credit enhancements in the deal, who is really responsible for the losses?

Over the years, securitizations (asset backed securities) have become very complicated and unwieldy. Equity and debt investors alike, therefore, should be prudent and cautious when dealing with these structures.  

Receivables are interwoven with a company’s cash flow, a mission critical function that has a direct result on shareholders’ equity and the stock price.

 

 

 

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