Monday, April 17, 2006

Berkshire Hathaway Shareholders

Stock Tip #5 - Always read the Balance Sheet and Cash Flow in between the lineshref="">Berkshire Hathaway Shareholders: "
The Little Trick: the little trick is to compare your calculated retained earnings figure to the market cap. If the retained earnings figure is 15% or less than your market cap, then I think you had better start asking some questions. If it is less than 10% of market cap, then you really have some real questions to ask. The first question that comes to mind is: I'm putting up X dollars, you've been in business for 10 or 20 years (doing what you do), you've only made 10% of X, how in the hell are you planning to pay me back X plus interest (doing what you do)????"

So adding back all dividends into Retained Earnings shows all profits a company has made since the beginning of time. Sort of like adding your annual salary since the beginning of time, and figuring out how much you're worth based on it. Not a hugely valuable metric... P/E & Debt numbers are probably worth more.

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