One of the key things that a value investor look into is a company’s financial strength. Small time investor like us have not many ways to do that but to analyze the balance sheet, income statement and cash flow statement.
At Investment Moats some aspect of the balance sheet that I look at to ascertain financial health are:
- Short Term and Long Term Debts – Efficient use. Less the better
- Cash and Equivalent Holdings – Adequate. More the better
- Short to Negative Cash Conversion Cycle
One unique characteristics about these S-Chips is that they keep a lot of cash. Some deploy their cash immediately but many just keep it to the tune of 30-50% of their market cap.
When I see this, I thought to myself: “This is a value buy!”
Sadly the case of China Milk and Oriental Century have taught us that those cash is only useful ...
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