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The Little Book of Value Investing

2009, Christopher H. Browne

4.9/5

The heart of this book is chapters 12-14. Chapter 12 is titled "Give the Company a Physical" and shows you how to examine the balance sheet. The important ratios here are:1. The current ratio - Current assets over Current liabilities - look for a figure greater than 22. The quick ratio - same thing minus the inventory3. Shareholder equity (book value)- Total assets (less intangibles) minus total liabilities4. Debt to equity ratio - Total debt over Shareholders equity - look for numbers < 1 - the lower the number the betterChapter 13 is titled "Physical Exam Part II" and examines the income statement. 1. Look for growing revenues ( sales)- top line2. Gross Profit - Sales minus COGS3. Gross profit margin - Gross profit over Revenue - look for stability4. EPS - net profit divided by shares outstanding5. ROC - Earnings divided by beginning of the year's capital (stockholder's equity plus debt)6. A low P/E relative to industry and marketChapter 14 is titled Send Your Stocks to the Mayo Clinic. Her he gives you 16 additional questions to ask about your company. You have to get the book to see the questions.This book gave me the idea to create a spread sheet with info that I gathered from the book. The following is the one I did on Intel. INTEL Shares Outstanding 4,980 Price per share 24.26 Market Capitalization $120,815 Earnings per share 2.0 TOTAL ASSETS 83083 NET WORTH ( SHAREHOLDERS EQUITY) 51,194 Intangibles 15563 Total Liabilities 31889 Book Value per Share $7.15 Price to Book value per share ratio Selling for 3 times the amount company can be sold forPrice to Earnings per share ratio Selling for 12.1 times earningsCurrent Assets 28677 Total Current Liabilities 11798 Net Current Assets (Graham's number) $16,879 Net Current Assets per share $3.39 Price to net current assets per share ratio Selling for 7.2 times net current assetsTotal Assets 83083 Total Debts 31889 Assets to Debt ratio 2.6
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