Man, Must You not Look before Taking that Quantum Leap?

I ask myself, what is the single most important element of financial statement that can tell all, well almost all? I realize it has to be growth in earning. Anything and everything good or bad about the company will certainly reflect on the earning, assuming that it consistently uses one method of accounting only. If a company generated good earning-growth consistently over the past five years, we could assume that it is run by an efficient team of businessmen. We could further assume that it will deliver the same result in the future, too. Nothing is guaranteed, of course. There is always a certain amount of risk that can never be completely excluded. But then, without the risk, can there be a reward, really? The other factor to look at is the relationship between the company market value and the retained earnings. Some investment veterans feel that for every dollar retained there should be a corresponding increase by the same amount in the company market value. This is a sign that the management is efficiently using the retained earnings to increase the market value of the company. Increased market value equals increased share value. A company can be considered a good investment candidate if its growth in earning approaches the certainty of bond coupon payment. When that happens earning becomes a predictable feature of the company, year after year. And that, in turn, helps estimate its intrinsic value far into the future. Companies with such features together with next to nothing debts should not only be able to tide over some rough economic times but also increase shareholders’ interests in the company in the long-term. Finding such a company is, indeed, priceless!

Suggested Reading:
The Warren Buffet Way: the investment strategies of the world’s greatest investor, Robert G.
Hagstrom, Jr