Learn to read Balance Sheets

Publicly traded companies are designed to make money. The conventional way of scoring this pursuit is by looking at the company's ability to grow various flavours of earnings.
Operating earnings, pre-tax earnings, net income and earnings per share are all common measures. However, this is not the only way to determine if there is real value in a company's stock.
A company's real earnings are the earnings that make it from the Consolidated Statement of Earnings to the balance sheet as a liquid asset.
Shareholder value ultimately derives from liquid assets, the assets that can easily be converted into cash. A company's value is determined by how much in the way of liquid assets it can amass.
There are 2 ways to think about this.
  • First - The first is to look at terminal value, which assumes for the sake of calculating potential return that at some future point a company will close down its operations and turn everything into cash, giving the money to shareholders.

  • Second - The second is to look at where tangible shareho...

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