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Whether you're walking a tightrope or scribbling in your checkbook, balance is a good thing. And, one of the best ways to evaluate a company is to glance at its balance sheet to see what it owns with what it owes.
The balance sheet is a paragon of simplicity and is made up of three components: assets (the stuff it owns), liabilities (the money it owes), and shareholders' equity (the company's value to its shareholders).
Assets take two forms: short-term (or current) assets and long-term assets. Under short-term, there¿s good ol' hard cash. Then, there¿s something called "cash equivalents," which are assets like short-term bonds that can be sold so quickly, they might as well be cash. There you factor in inventory, which (if you're a reasonably competent business owner) you can sell to customers in return for--you guessed it--cash. (The raw materials a company owns to make that inventory also falls under this category.)
Long-term assets are things that are harder to convert into cash. (Think real estate and equipment.) Long-term assets depreciate, meaning they lose some value over time. Also under the long-term category are what's called intangible assets: things like patents and brands, that are important, but hard to quantify. Accountants earn their stripes figuring out the real overall value of these assets.
Once you know your assets, it's time for liabilities. As with assets, liabilities are separated into short-term or current, and long-term. Current liabilities are what a company owes in that year: Things like payments to employees or accounts payable to suppliers. Long-term liabilities are debts paid over several years.
Shareholders' equity is determined by subtracting the liabilities from the assets. That number represents the value of the company after all its bills are paid.
Obviously, investors should pay close attention to balance sheets. Spikes in the amount of debt carried, or a reduction in shareholders' equity, are usually red flags.
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Friday, July 18, 2008
Zacks Analyst Blog Highlights: Johnson & Johnson, Harmony Gold Mining Co. Ltd., Koninklijke Philips Electronics N.V., Owens-Illinois, Inc. and Corporate Executive Board Co.
Comtex
CHICAGO, Jul 18, 2008 (BUSINESS WIRE) ----Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Johnson & Johnson (NYSE: JNJ), Harmony Gold Mining Co. Ltd. (NYSE: HMY), Koninklijke Philips Electronics N.V. (NYSE: PHG), Owens-Illinois, Inc. (NYSE: OI) and Corporate Executive Board Co. (Nasdaq: EXBD).
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Here are highlights from Thursday's Analyst Blog:
J&J: Fairly Priced Core Holding
Johnson & Johnson's (NYSE: JNJ) revenue growth in the next few years will likely slow relative to 2007 as a number of products are expected to experience declining sales. Incremental earnings growth will come in the form of improving margins and share buybacks. Investment in J&J offers consistency, reliability, and perhaps safety in this volatile market. We consider the name a core holding.
The company continues to contend with generic competition which will keep a lid on growth of its Pharmaceutical division over the next few years. Patents of schizophrenia drug Risperdal and epilepsy drug Topamax will expire in March 2009. The safety issues surrounding erythropoietin stimulating agents have also negatively affected sales of anemia drug Procrit. While the company has a number of late-stage candidates that are expected to be commercialized in the near-term, they will not begin to make a material impact until 2010 or 2011.
Harmony Gold Cutting Costs
Harmony Gold Mining Co. Ltd. (NYSE: HMY) is benefiting from higher gold prices. Going forward, Harmony is focused on reducing its overall operating costs through its continuous operations agreement and the shutdown of loss-making shafts. The company is also reducing its headcount to control costs. As a result, we rate the shares a Hold with a target of $11.50.
The company will sell Orkney shafts 2, 4, 7 and 60% interest in its Randfontein operations to Pamodzi Investment Holdings and U.S.-based equity firms First Reserve Corporation and AMCI Capital. In order to optimize value from its low-priority assets, the company also entered into a sale agreement with African Precious Minerals.
Philips Sees Some Biz Dragging
Koninklijke Philips Electronics N.V. (NYSE: PHG) reported slightly higher-than-expected revenue for the second quarter, as revenue recovered in the Medical Systems Division and there was strong growth in Lighting and Consumer Lifestyle. This led to the company over-performing our revenue estimates while higher gain on stake sale and a lower effective tax rate led to an earnings jump.
The company has worked to improve its cost structure, as its EBITA margins remained flat along with modest revenue performance despite the weaker-than-expected dollar.
Owens-Illinois Making Progress
Owens-Illinois, Inc. (NYSE: OI) reported first quarter EPS of $1.08, above our estimate of $0.80, on account of favorable currency translation, a higher-than-expected price recovery of manufacturing inflation and lower net interest expenses. The company saw double-digit glass container revenue growth across all geographic markets, except North America.
The company derived the bulk of its revenue gains from currency translation and price recovery rather than volume. We believe OI will continue to focus on profitability over market share. Our target price is $46.00, which is around 10.2x our FY08 EPS estimate of $4.51.
Corp. Executive Board Overvalued
We maintain our Sell rating on Corporate Executive Board Co. (Nasdaq: EXBD) before the release of second-quarter results on July 23. Given the current operating pressures, along with ongoing concerns regarding a slowing economy, we believe the shares should trade at a discount to the peer group average. We anticipate that the stock will underperform the market in the near term.
The current outlook for 2008 remains challenging, and we have identified several concerns within the company's current operating statistics. On its year-end conference call, the management indicated that the current corporate budgeting environment in the U.S. is proving to be a hindrance in driving new revenue.
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Continuous coverage is provided for a universe of 1,150 publicly traded stocks. Our analysts are organized by industry which gives them keen insights to developments that affect company profits and stock performance. Recommendations and target prices are six-month time horizons.
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Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978 by Leonard Zacks. As a PhD in mathematics Len knew he could find patterns in stock market data that would lead to superior investment results. Amongst his many accomplishments was the formation of his proprietary stock picking system; the Zacks Rank, which continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time! Register for your free subscription to Profit from the Pros at http://at.zacks.com/?id=4580.
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SOURCE: Zacks.com
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Copyright Business Wire 2008 ********************************************************************** As of Monday, 07-14-2008 23:59, the latest Comtex SmarTrend� Alert, an automated pattern recognition system, indicated an UPTREND on 07-14-2008 for HMY @ $12.26. As of Monday, 07-14-2008 23:59, the latest Comtex SmarTrend Alert, an automated pattern recognition system, indicated an UPTREND on 07-09-2008 for JNJ @ $66.51. As of Monday, 07-14-2008 23:59, the latest Comtex SmarTrend Alert, an automated pattern recognition system, indicated a DOWNTREND on 05-02-2008 for OI @ $54.10. For more information on SmarTrend, contact your market data provider or go to www.mysmartrend.com SmarTrend is a registered trademark of Comtex News Network, Inc. Copyright � 2004-2008 Comtex News Network, Inc. All rights reserved.
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