Knowing how to analyze a balance sheet is a must to make good investment decisions. You want to invest in companies that are in good financial shape. Read how to read a balance sheet like an expert here.
After reading your article, I showed it to my sister, who has been in accounting for a long time, and she was pleasantly surprised at how easily you were able to describe complex terms "In child language". My sister and I look forward to your next articles!
The question I would like to ask you is: together with the interest coverage ratio, would you also look at the current, and more importantly, the quick ratios? Do you consider them equally important for your analysis?
In my opinion, covering the interest on the debt is important but the business must be able to meet its short term obligations like accounts payable for example. I like to see quick ratios of at least 1, and current ratios above 1.5.
When you buy quality companies with high margins, a high ROIC, a wide moat, ... they usually don't have liquidity issues. Often, they even have a net cash position.
Sometimes I take a look at the quick and current ratio to take a quick glance at a company. When these ratios are very high, it's a good sign. When they are below 1, you should take a look at the underlying reason why these ratios are so low.
Let’s say I wanna compare JKHY, FIS and FISV which are all providing software services to the financial and banking sector. How should I evaluate them?
Thanks for share your knowledge
I apreciate
Thank you for reading it! Without readers it wouldn't make much sense to write these articles. :)
By the way, very useful text!!
Doesn’t the interest coverage ratio comes from the income statement??
Good remark. It combines the healthiness of the balance sheet and the income statement.
As usual, great info and to the point!
Thank you very much, Vinny!
Of course!!!
Great overview Compounding Quality!
Thank you very much. I love your content as well!
After reading your article, I showed it to my sister, who has been in accounting for a long time, and she was pleasantly surprised at how easily you were able to describe complex terms "In child language". My sister and I look forward to your next articles!
Wow. Thank you very much, Ted! This is one of the kindest compliments I've received as this is exactly the goal of these articles.
The best is yet to come!
Thank you for another great post!
The question I would like to ask you is: together with the interest coverage ratio, would you also look at the current, and more importantly, the quick ratios? Do you consider them equally important for your analysis?
In my opinion, covering the interest on the debt is important but the business must be able to meet its short term obligations like accounts payable for example. I like to see quick ratios of at least 1, and current ratios above 1.5.
Thank you!
Hi,
When you buy quality companies with high margins, a high ROIC, a wide moat, ... they usually don't have liquidity issues. Often, they even have a net cash position.
Sometimes I take a look at the quick and current ratio to take a quick glance at a company. When these ratios are very high, it's a good sign. When they are below 1, you should take a look at the underlying reason why these ratios are so low.
Thank you very much for the explanation!
Thanks sir
Thank you, Pankaj! Don't hesitate to reach out if you have questions.
Brief, insightful, love this!
Thank you very much, Shailja!
Excellent! I really enjoy reading your articles.
Thank you, Joseph!
Great article - I’ll certainly be using those ratios when next looking at company’s! Joe.
That's lovely. Tomorrow we'll publish an article about how to read an income statement!
Very well explained. Thanks!
It's an honor, Maisam!
Are there any topics you want to see covered in the future?
Let’s say I wanna compare JKHY, FIS and FISV which are all providing software services to the financial and banking sector. How should I evaluate them?
That's a great question, Maisam! I'll write an article about this in the future.
Very nice. Loved it 👌👌
It's an honor, Anil!
Yeah, for example what metrics to use for comparing peers in different industries.