We live in a world that seems more unsafe by the day. In like fashion and in my view, the stock market seems to face more uncertainties than I recall. Yes, the Great Recession of 2008 and 2009 saw such a collapse in stock prices and a run on the banks was headed off by massive government stimulus and Fed activity which has almost been continuous since. […]
Equity is the excess of assets over liabilities. It is ownership. To really have ownership, there has to be a surplus of resources above all obligations. […]
Last week, my post discussed the principle of accounting for operating inflows referred to as the revenue recognition principle. Continuing with the overarching theme of accrual accounting, this week I’ll write a few things about the application of measuring outflows (i.e. expenses) from operations. […]
Accrual accounting is an important concept to investors’ understanding of earnings. Since earnings drive stock prices, understanding something about how earnings are measured is surely relevant to investing in common stocks. Accrual accounting is the basis by which earnings are measured under generally accepted accounting principles (GAAP). […]
One meaning of topsy-turvy per Webster is “in great disorder or confusion.”
My personal view for the apparent confusion that presently drives the market way up one day and way down the next involves several factors: […]
A reader named Marc who has become a friend over the past year corresponds with me from time to time. This week he wrote me about Netflix (NFLX) as an excellent very recent example of a major point of emphasis in my book, “Choose Stocks Wisely.”
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This past week, I got a very nice e-mail from a reader of my book who lives in Hong Kong. I could tell he was knowledgeable about the balance sheet. He wondered why the balance sheet does not play a more important role in investing and why so much emphasis is placed on future expectations, growth and earnings. If you’ve read my book and followed my blog posts, you know that this reader is in the same camp of thought as I am. […]
My book, “Choose Stocks Wisely,” is all about the importance of the balance sheet equity (described as Stockholders’ Equity on the balance sheet) toward properly evaluating the quality and worth of a share of common stock. When you buy a share of common stock in a company, you are buying a share of the equity. So, analyzing the balance sheet equity of a company before investing money into that company is not only logical but also essential.
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I talked this week about financial leverage during one of the college courses I’m teaching this semester. Financial leverage describes the use of debt financing as a means of levering earnings higher. Using debt financing is like using a crowbar on earnings. Indeed, when a company is experiencing profitability, it can enhance profits through the benefits of using debt to finance the assets used in operations.
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My book, Choose Stocks Wisely, is simply about the balance sheet’s critical role to risk assessment as it relates to buying quality stocks at low prices. Yet, you rarely hear the balance sheet discussed when stock prices are the topic of conversation. Company earnings are always front and center and the balance sheet is not an earnings report but a statement about financial position and financial health.
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