hedge-hog.com
Hedge Hog University
I wonder if they are accredited?
In this example (I am not making this up) the author confuses assets and equity. But he is able to redeem himself by telling us we can get the Annual Report from the Public Company. This will not win our contest, but it does qualify as an eligible entry, unlike Chalu2's made up entries.
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Volume 2 Lecture 2: Debt/Equity Ratio and Balance Sheet
In the last lesson, we alluded to Debt/Equity ratio. There are numerous ratios fundamental analysts use to compare stocks and to try to place a value on stocks in order to determine whether or not a stock is inexpensive at its' current market price compared to other
periods. Some of these are as follows: Debt/Equity Ratio, Earnings per Share, Price/Earnings Ratio, Current Ratio, Working Capital Ratio, Quick Ratio, Percentage Of Capital Ratios, Interest Coverage, Net Profit Margin, Net Return on Invested Capital, Dividend Yield and the new darling, PEG. (I say new darling for the latter fundamental tool
because this writer took (and passed) a securities course four years ago and there was no PEG calculation then).
Debt for a public company is just what debt is for you and me (something we wish we didn't have). And Equity for a public company is a composite listing of its' assets (something we all wish we had more of). Less Debt and more Equity or "The money we owe divided by the money and possessions we own". This is a RATIO. If we owe $100 to
the IRS and we have a bicycle worth $50 and we have $200 in our pocket, we have a D/E/R of 0.4. If, on the other hand, we owe the IRS $300 and all we own is a bicycle with a flat tire worth $10, we have a D/E/R of 30. So which number is better for us? The small fraction? Or the large whole number? And if we are trying to impress someone, which of our two ratios is going to impress that person the most? So it is with the Debt/Equity Ratio. Where can it be found? On the Balance Sheet. Where do we find the Balance Sheet? In the Annual Report. Where do we get the Annual Report? From the Public Company.
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In case you skimmed it too fast to follow the math or got side-tracked by LOL at other parts, he is saying:
Assets
Cash............$200
Bike............ $50
............... -----
Total Assets.. $250
Liabilities and Equity
Debt to IRS.....$100
Equity.............$150
.................------
Total L&E........$250
"Hedge Hog" debt/equity ratio = 100/250 = 0.4,
rather than the more common debt/equity ratio = 100/150 = 0.667
If you email the hedge hog perhaps he can give you the name of the securities course he took 4 years ago. |
