I want to continue a theme I started two weeks ago with a post titled “Making the Minimum Credit Card Payment” and followed-up last week with another post called “Choosing Weak Balance Sheets and High D/E Ratios.” I know some of you read the May 27 Bloomberg piece linked next because you wrote me about it this past week (Thank you for that):
http://www.bloomberg.com/news/2014-05-26/bad-credit-no-problem-as-shares-of-balance-sheet-bombs-rise-94-.html
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Think of this week’s post as somewhat of a follow-up to last week’s one called “Making the Minimum Credit Card Payment.” Al is someone who read my book, “Choose Stocks Wisely: A Formula That Produced Amazing Returns,” and he has written me from time to time. He has become a friend and our recent e-mail conversations led to today’s post. Al wondered at my thoughts over two issues he read about very recently, namely that weak balance sheets are expected by Goldman Sachs to outperform strong balance sheets looking ahead and that companies with high financial leverage ratios (debt to equity) have outperformed companies with lower debt to equity ratios. The following two links Al sent me are below:
http://www.valuewalk.com/2014/05/weak-balance-sheets-lead-market/
http://www.fatpitchfinancials.com/2256/total-debt-to-equity-ratio-backtest/
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As you know, there is a lot of debt in our country and at all levels. Many credit card companies offer large amounts of credit to consumers so long as a relatively small minimum payment is made each month.
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Financial statements exist to allow outside investors to know where a company stands financially (Balance Sheet), what the company is producing in the way of return (Income Statement), and how the cash is being managed (Statement of Cash Flows).
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