" .... balance sheet investing has almost never worked for me without earnings also improving ... "
I would say that can be clearly seen in the basic BALANCE SHEET EQUATION, which I have referred to before on this Board, namely ------>
SHARE CAPITAL + RETAINED INCOME = TOTAL ASSETS - TOTAL LIABILITIES
..... where "Retained Income" Grows, or Reduces, from what it receives from the Bottom Line after any Dividends are subtracted, i.e. Net "Earnings", from the Income Statement.
As Revenue gets added to "Retained Income", Total Assets GROW/INCREASE relative to Total Liabilities, irrespective of what items are contained in either of them.
Therefore, IMO, the First Ratio to check, when interrogating a company, is NET INCOME/TOTAL REVENUE.
If that's, say, greater than around 20%, and Net Income and Total Revenue are each increasing on a regular basis, then one is at least off to a good start, and the "quality" of the Balance Sheet should improve accordingly.
There are so many "parameters" that stock market investors interrogate, but at the end of the day a company is out to make as large a Net Profit as possible, and that can be readily and initially determined by simply looking at the contents of the Income Statement .... how Much comes IN at the Top, and how Much is LEFT at the Bottom ... the MORE the BETTER.
IMO, there's something to be said for the "KIS" principle ...... |
