Balance Sheet Forensics Over Earnings

“strongly urge that more attention be paid to balance sheet items such as inventories, pension funds, and extra assets as well as questionable accounting techniques. I would prefer that Discounted Cash Flow Analysis be used only in an analyst’s private working papers. The link between the balance sheet and the profit and loss statement is the source and use of funds. We have done good work in analyzing this part of the business equation. We should do more. I think there is an extraordinary opportunity to build an outstanding business on the old-style value principles as modified by our recent experience and knowledge.”

“It is customary among investment analysts to apply standard percentages to all of these classes but I think that this is a dangerous over-simplification and I believe that it is essential to work through the minutiae because it is precisely by so doing that hidden assets or problems may be uncovered.”