Security Analysis by Benjamin Graham and David Dodd was first published in 1934. It is a fundamental book for serious students of value investing.
In chapter 45, Mr. Graham and Mr. Dodd turn to scrutinize the Balance sheet from the perspective of analyzing the company's financial position. The analyst needs to carefully look into various aspects of the balance sheet such as working capital, and debt position to figure out the financial soundness of the enterprise.
Working capital ratio along with looking into it excluding inventory provides an idea about the financial health of the company. However, there could be industry-specific exceptions. The nature of the debt in terms of type and amount and its maturity should be considered. Long-term bank loans have an aspect of reducing maturity.
The balance sheet should be also checked across periods of time to reasonably ascertain improvement or deterioration in the company's business returns.
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