Equity | Choose Stocks Wisely

Price to Book

When searching for a company that might satisfy my investing criteria, I’m looking for a situation where the market capitalization (current stock price multiplied by the number of outstanding shares) is less than the book value (equity) of the company. That is, I’m looking for a company where the stock market is pricing that company for less than the value being assigned to it by the internal accounting function. Thus, my P/B filter is set to under 1.0. My goal is to buy at a low price and that means buying all the equity I can get for my dollar. So, the P/B is the best place to start filtering for low-priced stocks, in my view. […]

September 20th, 2014|book value, Equity, market value|0 Comments

Book Value and Market Value of Equity

The term book value is an accounting term that simply refers to the value(s) we record on the books for the various accounts tracked by a company. We track the values of the resources a company has to work with, namely assets. We track the values of the obligations assumed by the company to help support its asset structure, namely liabilities. The excess of the assets we record over the liabilities we record is the equity, the remainder that represents the net book value of the company. […]

August 30th, 2014|Balance Sheet, book value, Equity, market value|1 Comment

Financial Statements and Their Purposes

Financial statements exist to allow outside investors to know where a company stands financially (Balance Sheet), what the company is producing in the way of return (Income Statement), and how the cash is being managed (Statement of Cash Flows).

[…]

May 10th, 2014|Balance Sheet, Equity, financial information|0 Comments

Just Why Is The Balance Sheet So Important?

If you were to look at a lot of companies and their stock prices, you could often conclude that the balance sheet does not seem important at all. I’ve mentioned before that there are numerous companies that sport a healthy stock price while also carrying a negative tangible book value per share. In such cases, future expected earnings must uphold the stock prices because no case can be made from the balance sheets that solid underlying equity support exists.
[…]

April 30th, 2014|Balance Sheet, Equity, Risk|0 Comments

Another Semester Coming to a Close

Another college semester is winding down. This semester, I’ve taught a course on how to analyze the financial statements from the lender and investor perspectives relative to financial decisions made by these parties. The students have been wonderful and we have had a very spirited discussion across the term.

[…]

April 25th, 2014|Balance Sheet, Equity, financial analysis|2 Comments

Another Angle on the “Value” of Balance Sheet Investing

Most stock market participants don’t give much attention to the equity of a company, found on its balance sheet, when it comes to setting a value for the company through the present stock price. This is amazing to me since a share of stock represents a share of company equity.

[…]

April 12th, 2014|Balance Sheet, Equity, value investing|0 Comments

Crediting One’s Account

Equity represents wealth. On a corporate balance sheet there is an account called Stockholders’ Equity and it represents the wealth of all company stockholders that has been accumulated across the life of the business.

When we hear the phrase that our account has been credited, we see that as a good thing. It represents an expression that our worth has been increased. In the practice of accounting, a corporation’s Stockholders’ Equity account on its balance sheet is increased when we book a credit to that account. Further, the Stockholders’ Equity account represents an amount that belongs to all company stockholders proportionate to the number of shares held by each owner. Shareholders increase in equity, or wealth, when their collective account, namely Stockholders’ Equity, is credited through an accounting book-keeping entry.

[…]

November 17th, 2013|Balance Sheet, Equity, faith, God|0 Comments

Buying Stocks Near Tangible Net Asset Value

My book, “Choose Stocks Wisely: A Formula That Produced Amazing Returns,” communicates in step-by-step fashion the usefulness of the balance sheet to finding a buying price on a common stock. As stated before, a share of stock is a share of company equity. Equity is found only on the balance sheet.

Also found only on the balance sheet are a company’s assets (resources) and its liabilities (obligations). The excess of the assets over the liabilities is equal to the equity of the company. Since equity is equal to the residual after subtracting liabilities from assets, equity is also referred to as “net assets.”

[…]

November 3rd, 2013|Balance Sheet, Buying, Equity, net tangible assets, Stock|4 Comments

Think of Equity Being Like Your Checking Account Balance

Equity is a type of account found on the balance sheet and equity belongs to common stockholders when the business is in the corporate form. When something beneficial, financially speaking, happens to the company, the amount (balance) of the equity account goes up. When something negative, financially speaking, happens to the company, the equity balance goes down.

[…]

September 18th, 2013|Balance Sheet, Equity, Stock|0 Comments

Risk is the Downside

When purchasing common stocks, the name of the game is risk avoidance. If you avoid losing money, you stand to do well in the stock market. You buy a stock to achieve a return, but achieving a return depends on buying quality stocks when they are trading at bargain prices. That is, you make a good stock investment when you buy stock in a solid company that is underpriced. When you do this, you have minimized risk by minimizing your potential loss. If you want to achieve good returns consistently, don’t focus your attention on the possible return; focus on minimizing your risk of loss when you buy.

[…]

August 12th, 2013|Balance Sheet, Buying, Equity, Risk, Stock|0 Comments