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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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Thursday, July 17, 2008
Merrill Loses $4.65B in 2Q
FOXBusiness
Hit by $9.75 billion of writedowns, Merrill Lynch posted a fourth consecutive quarterly loss on Thursday that widely missed Wall Street's already drastically lowered expectations.
Merrill Lynch (MER) lost $4.65 billion last quarter, or $4.97 per share, compared to a profit of $2.14 billion, or $2.24 per share, a year ago. The financial giant posted negative revenue of $1.4 billion, compared to positive revenue of $8.98 billion a year ago.
On an adjusted-bases, Merrill lost $4.95 per share, compared to a profit of $2.10 a year ago.
Analysts polled by Thomson Reuters had been expecting a loss of $1.91 a share on positive revenue of $3.3 billion.
The $9.75 billion in writedowns was larger than the $6 billion analysts had expected, according to Dow Jones Newswires. It brings Merrill's total to nearly $40 billion since the third quarter of 2007.
Shares of Merrill Lynch tumbled more than 4% minutes after the results were released. The world’s largest brokerage failed to join in the string of better-than-expected earnings reports that several of its rivals gave Wall Street. The latest results add to the carnage of the subprime debacle and the credit crisis.
CEO John Thain told analysts during the company's conference call that the second quarter was "difficult and disappointing." In particular, Thain said the final two weeks of June were difficult.
Merrill Lynch also announced it has agreed to sell its 20% stake in Bloomberg LP back to the company for $4.4 billion. The sale of its investment in the financial news and data provider helped offset Merrill’s massive losses. The move was first reported in several media outlets on Wednesday.
The financial giant has been unable to come to terms to sell its 49% stake in asset manager BlackRock (BLK). Earlier in the day BlackRock announced solid second-quarter results that topped Wall Street’s estimates. Thain said on Thursday the BlackRock stake is worth about $13 billion.
Also, Merrill said in its press release it has signed a non-binding letter of intent to sell its controlling interest in Financial Data Services with an initial price tag in excess of $3.5 billion. The company declined to identify the potential buyer, Reuters reported.
Merrill said it slashed 4,200 jobs in the first half, bringing its total headcount to 60,000 at the end of the second quarter.
Earlier in the day The New York Times reported Merrill Lynch ended its talks to move its headquarters to a new office tower at the World Trade Center site. Merrill’s lease on its downtown Manhattan office is set to expire in 2013.
Shares of Merrill Lynch closed more than 10% higher on the New York Stock Exchange on Thursday amid a broad financial sector rally. Its stock has fallen nearly 50% year-to-date.
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