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January 31, 2014 / subramanyam

Balance Sheet from an Investors view point.

          A very good thing I learnt from a teacher.  Very good advice when you want to analyze a company’s balance sheet with the intent to invest in it.  Posting it here as it would help me remember the facts and helps me share this info with you.  Not that you do not know, sharing this because I liked the perspective.

3 factors you ought to look into when you look at the balance sheet of any company

1.       Liquidity

          The speed with which the assets can be turned into cash without losing much on the value front. Extremely important measure that can in a way speak about the challenges the company is going to face in the days to come.

2.       Debt Vs Equity

          The amount (ratio/percentage) of debt in a corporation/company’s capital structure is an extremely important measure while analyzing the company’s balance sheet. The amount of debt a company has (as a percentage of its assets) the bigger is the risk for the company.  This debt might lead to increased interest expenses and increased loan costs that might even bring down the company.

3.       Market value Vs the Book Value

         We all know that the book value is the historic cost, this is the cost we see on the books of the company.  Market value of the company’s products and assets are needed to find out the true standing of the company today.  Comparing the market value with the present value helps make a prediction about the companies health and profit.

                Well this is all I can say here, please share your thoughts.


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