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A few days back, I had posted a video on how to analyze the balance sheet on the Equities and Liabilities side.
In continuation of that series, here are two videos on how to analyze the Assets side of the balance sheet.
Given my habit of speaking too much when no one is listening :-), I have divided the explanation in two parts.
[Read more…] about How to Master Analyzing the Balance Sheet – Part 2
Here is what Mr. LS Chauhan, a tribesman, wrote as a comment on my latest post on Opto Circuits – “Could you please consider taking OCIL balance sheet as an illustration while you post your next lesson on ‘How to read a balance sheet’.”
So here is a video I have prepared to help you understand the Balance Sheet, and through the example of OCIL’s balance sheet. 🙂
Since explaining how to analyze a complete balance sheet would have taken a lot of time, in this video I explain how to look at the “Equity & Liabilities” side of a balance sheet. I will take up the rest of the analysis – of the Assets side – in a subsequent video.
Anyways, as they say, to know how good a job a manager did, you have to have a good idea how much risk he took.
In the same way, to know how good a business a company is doing, you have to have a good idea how much risk it carries on its balance sheet.
The “Equity & Liabilities” side tells you exactly that.
[Read more…] about How to Master Analyzing the Balance Sheet – Part 1
Warren Buffett wrote in his 1992 letter to shareholders of Berkshire Hathaway…
In the Theory of Investment Value, written over 50 years ago, John Burr Williams set forth the equation for value, which we condense here: The value of any stock, bond or business today is determined by the cash inflows and outflows – discounted at an appropriate interest rate – that can be expected to occur during the remaining life of the asset.
What Buffett defines here is essentially what we know as the discounted cash flow or DCF, a key method to calculate intrinsic value of companies.
The interesting thing to note here is that no one knows whether Buffett has ever used DCF himself!
Even Buffett’s business partner and alter ego Charlie Munger has occasionally said that he has never seen Buffett doing any DCF calculations.
[Read more…] about How to Value Stocks using DCF…and the Dangers of Doing So
“How can this be possible?” you must be wondering.
Indeed there’s a way – and you can get a lot of hints from this on whether to junk the annual report, or to explore it deeper.
Well, let me have this video do the talking.
In this video, I also talk about 8 warning signs you must watch out for while glancing through an annual report.
[Read more…] about How to “Read” an Annual Report in 5 Minutes
You might remember Cuba Gooding Jr.’s immortal line from the movie Jerry Maguire, “Show me the money!”
That’s what financial statements do for investors – show the money that companies earn, own, and owe.
These statements appear in a company’s annual report, and are broadly classified into three categories:
Over the next few weeks, we will discuss these key financial statements that companies use to communicate their performance with investors, and how you can use them to identify the best long-term investment opportunities.
Let’s start with the Balance Sheet, also known as the ‘Statement of Financial Position’ of a company.
[Read more…] about Safal Niveshak Classroom: How to Read a Balance Sheet
“You should always buy the stock of a good company.” In isolation, this seems a very valid statement.
But look at this – “You should always buy the stock of a good company, whatever the price.”
Now, this is a highly dangerous advice to give to someone.
A great company can translate into a great investment. But all great companies do not translate into great investments.
Confused? Well let me clarify.
There is a business behind a company. And there is a great business behind a great company – one that has all the ingredients of success, enjoys pricing power, generates a lot of free cash flow, is not much troubled by competition, and has a very good management team at helm.
So this business has a great value. But it will make a great investment only if it is bought at a reasonable price.
“But how do you know what is a reasonable price?” you may ask.
[Read more…] about Intrinsic Value: The Holy Grail of Value Investing