레이블이 Assets to Equity Ratio인 게시물을 표시합니다. 모든 게시물 표시
레이블이 Assets to Equity Ratio인 게시물을 표시합니다. 모든 게시물 표시

2013년 11월 25일 월요일

About 'shareholder equity ratio'|Looking at financial health of a company using debt ratios







About 'shareholder equity ratio'|Looking at financial health of a company using debt ratios








               Ask               someone               what               the               most               important               factors               in               determining               if               a               publicly               traded               company               is               a               good               purchase               and               many               will               say               it               is               earnings               per               share               and               price-to-earnings               ratio.

While               these               two               factors               are               important               in               determining               if               a               company               is               good,               earnings               are               only               the               top               layer               that               has               to               be               peeled               away               to               determine               if               a               company's               stock               is               a               good               purchase.



               I               was               one               that               fell               into               this               category.

I               have               always               dabbled               a               bit               with               the               purchasing               of               stocks.

When               doing               my               homework               on               what               to               buy               or               pass               over,               it               always               started               with               what               are               the               earnings               per               share               and               what               is               the               ratio               to               price.

I               could               never               figure               out               why               someone               would               pay               $30               for               a               share               of               a               pharmaceutical               company               that               had               negative               earnings               of               .10               per               share.

Today               as               a               student               who               has               just               decided               to               go               back               to               school               for               my               MBA,               I               am               taking               my               first               accounting               class.

I               have               seen               in               just               a               few               short               weeks               that               there               is               much               more               to               buying               a               stock               than               earnings               alone.
               We               know               that               earnings               are               the               sales               minus               the               expenses               over               a               given               period               of               time,               which               is               usually               looked               at               over               a               three-month               or               one-year               period.

Without               any               earnings,               we               can               almost               right               off               any               company               as               a               bad               investment.

Now,               I               say               almost               any               company               because               after               reading               about               assets,               liabilities,               and               owners               equity               on               countless               balance               sheets,               a               light               bulb               went               off               in               my               head.

While               these               documents               provide               a               great               deal               of               information,               they               only               give               hard               numbers               and               can               not               tell               the               entire               story               of               a               company.

The               reason               someone               would               pay               $30               for               a               company               losing               .10               per               share               is               based               on               potential               future               earnings.

If               a               pharmaceutical               company               has               a               drug               in               its               pipeline               that               could               potentially               increase               sales               by               millions               for               that               company               then               investors               are               willing               to               take               a               risk               based               on               the               potential               of               future               earnings.
               When               looking               at               companies               stocks               and               there               comparative               balance               sheets,               it               becomes               evident               that               how               much               factor               it               has               on               the               price               per               share               is               very               sector               specific.

If               you               take               a               look               a               companies               that               are               well               established               in               industrial               equipment               and               financial               sectors               the               price               to               earnings               are               all               within               a               moderate               range.

From               looking               at               the               balance               sheets,               the               difference               in               the               stock               prices               in               these               sectors               can               easily               be               explained               by               looking               at               the               basic               line               items               over               the               last               three               years:               assets,               liabilities,               and               shareholder's               equity.

This               equates               to               the               basic               equation               that               needs               to               be               driven               home               to               understand               the               balance               sheet:               Assets=               Liabilities               +               Owner               Equity.
               This               all               seems               easy               enough               until               we               start               looking               in               to               some               other               sectors               when               the               stock               pricing               gets               complicated.

When               you               start               digging               into               the               Drug               provided               and               Internet               information               provider               sectors,               the               ties               of               stock               price               to               the               balance               sheet               goes               out               the               window.

Looking               at               the               Internet               information               companies               we               see               an               example               of               a               company               that               has               yet               to               release               a               balance               sheet               and               earnings               of               only               .19               a               share               trading               at               100               times               earnings.

Conversely               we               see               a               company               that               is               well               established               that               earns               over               $3               a               share               and               only               trades               at               five               times               earnings.

There               has               to               be               reasons               for               this               that               go               deeper               than               the               numbers.

The               reasons               can               be               attributed               to               potential               future               earnings,               diversity               of               revenue               streams               and,               to               some               extent,               simply               what               is               popular               at               the               time.
               All               in               all               while               earnings               are               what               drive               a               company,               they               alone               can               not               make               a               company               a               good               one.

The               balance               sheet,               income               statement,               and               cash               flow               all               provide               valuable               knowledge               to               the               potential               investor               deciding               weather               or               not               to               purchase               a               stock.

It               is               essential               that               when               doing               homework               on               a               company               to               look               deeper               than               the               hard               numbers               to               determine               if               the               investment               can               be               deemed               a               good               one.






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