Today you mention flaws in a balance sheet can be spotted in seconds. As a non-accountant balance sheets remain much of a mystery to me, especially as accounting rules and sub-headings keep changing. I'm sure an explanation of how you use those seconds would be much appreciate by your readers!
Kind regards
Malcolm Elliot
I am reasonably confident that it was not intended that way, but your comment comes across as a little flippant (at best) and patronising (at worse).
Also, maybe you are taking the term seconds too literally (I am sure some people can, but I don't know many, certainly not technical accountants, they tend to get more excited about accounting treatment than analysis!!)*
Anyway - hopefully you find below helpful.
Very simply follow the cash and profit - in a simple world, the change in the balance sheet should be the profit for the year, and change in operating cash should be close to profit with overall change in cash being op cash - investment, debt repayment and dividend for the year.
Everything else should be CapEx, debt, dividends.
CapEx should be financed by op cash (ideally) and then debt / equity.
If profits not converting to operating cash, red flag!
If company states they are investing, which is why their profits don't turn to operating cash, then they are either lying or financing their customers.
I dare say if a balance sheet takes too much time to make sense of - red flag!
If you need to be a technical accountant and start reading IFRS (unless it is in certain industries) in order to understand a balance sheet, red flag!
If you find the working capital position changes a lot between interims and audited results - red flag - that for me was the kicker to exit Globo!
Below link might be useful
http://www.akca.co.uk/2013/02/19/10-minute-guide-to-understanding-a-balance-sheet/
*To my technical brethren - I love you really - where would the world be without a good debate on IAS 21, Para 15(b)!
Preaching to the converted over here!!
Given hump day and it has been a long week already - I appreciate the laughs!
