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Vivek Sukhani
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Joined: 23/Jul/2006
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   Topic: Which is better... Good B/S and Poor P/L
Posted: 24/Sep/2006 at 7:52pm |
Basant, which company is a better investment... A company which has a very good Balance Sheet and a relatively poor Profit & Loss account or a company which has a poor Balance Sheet and excellent Profit & Loss Account.I get perplexed most of the times and very often I have to set aside an investment decision simply because I dont find both of them attractive.All, I want to know which can be compromised, balance Sheet or Profit & Loss Account?
Its a tricky question, but the post on Webel SL Energy is something which makde me feel like asking this question. That company has a very good P/L Account but its B/S, was something which appeared very awkward to me.
Kindly throw more light on this.
Viivek
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basant
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Posted: 24/Sep/2006 at 7:59pm |
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As you know I try looking at the business first because if that is good B/S P&L will all fall into place. You cannot have this disparity for long as the P&L A/c would keep feeding the Balance Sheet.
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Vivek Sukhani
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Joined: 23/Jul/2006
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Posted: 24/Sep/2006 at 8:12pm |
What will say about a company using a very high gearing with an excellent looking Profit& Loss Account but a relatively inferior Balance sheet.Also Basant, kindly know some light on the quants you use to qualify something as good company.Just that I wantto adopt investing more as a science and less as an art. I am an apt follower of the belief that those who forget history are condemned to repeat it. My personal fancy is therefore for excellent Balance Sheets and then I look at P/L Accounts. In other way, a good balance sheet is a necesarry conddition and a good P/L is a sufficient condition for investment.There's a reason why I initiated this thread. I am finding people simply forgetting to talk about Balance sheet when they read out investment ideas.I definitelu agree that P/L feeds balance sheet, but then the historical overhang of the B/S should also be a priority, if I am not wrong. also, when we look at P/L we ignore many important items like depreciation and interst outgo.By we I mean most of the investment advisors.
Basant, I will be much glad if you can illustrate waus how we can discover window dressing in the Balance Sheet and a Profit & loss account
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akash
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Joined: 09/Sep/2006
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Posted: 24/Sep/2006 at 9:02pm |
I think Mr.Basant is quite rite in his saying that a good business model and good mgmt. are the first two things to look before investing and then go for any financial interpretation. As all the financial staements can be manipulated which as seen many times like in case of Enron,Worldcom etc. I am not saying that they are not helpful infact they are the most imporatnt things but still the other things remains who runs the business.
Window dressing by simple look could be observed if we see much of interest burden charges,high depreciati0on expenses,other income component etc items in staements and does not see much rise in sales or turnover becuase if we dont see sales increasing but other item increasing mentioned they it can be seen that business model is not in a good shape, they are having trouble running business.Having said that it should be seen that whether business is in consolidating phase or expansion phase during such period these things tends to occur.So,it takes a lot ogf pain to undersatand tha staements effectively. I hope it helps.Happy Investing!!!
Akash
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Akash Bedi
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valuepicks
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Posted: 14/Feb/2011 at 10:15pm |
Basantji or other senior members,
I could not find an appropriate topic to post this query. Taking liberty to post this here:
How can I find any capital expenditure carried in balance sheet or cash flow statement?
Let's take a TED favorite - Page Industries:
I don't find any 'fixed assets' to track....
What to look in cash flow: investing activities?
Edited by valuepicks - 14/Feb/2011 at 11:11am
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Investment Rule #1: Do not lose capital. Rule #2: Do not forget Rule #1 - Warren Buffett.
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Crazy Horse
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Posted: 14/Feb/2011 at 7:24am |
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You should track Gross Block (pre-depreciation), Net block (post-cumulative depreciation) and Capital work in Progress (for ongoing capex) in the balance sheet. In CF, you can find annual capex in cashflow from investing segment.
ps: pls note that Gross Block/Net Block etc sums up all capital assets like land, building, machinery, goodwill (typically created on acqusition) etc. To get a deeper understanding of the fixed assets you will have to look at the notes to acounts as well.
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The bravest are surely those who have the clearest vision of what is before them, glory and danger alike, and yet notwithstanding, go out and meet it (Thucydides, Circa 460 BC - 400 BC)
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valuepicks
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Posted: 14/Feb/2011 at 11:22am |
Crazy Horse,
Just checked the gross block for Page. I see an increase of 55%, 100%, 40%, 44% over the last 5 years.
These numbers seem big - haven't compared with other companies at this time, though. Is it normal to find such capex for all companies?
The cash flow statement indicates bigger negative flows for the years 2007, 2008 and 2010.
btw, my interest is to find how much of such capex is actually done solely to increase 'production capacities' - i hope that this should be available in 'notes to accounts'?
Originally posted by Crazy Horse
You should track Gross Block (pre-depreciation), Net block (post-cumulative depreciation) and Capital work in Progress (for ongoing capex) in the balance sheet. In CF, you can find annual capex in cashflow from investing segment.
ps: pls note that Gross Block/Net Block etc sums up all capital assets like land, building, machinery, goodwill (typically created on acqusition) etc. To get a deeper understanding of the fixed assets you will have to look at the notes to acounts as well. |
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Investment Rule #1: Do not lose capital. Rule #2: Do not forget Rule #1 - Warren Buffett.
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