Tuesday, December 6, 2011

How To Analyze Business Structure and Stockholders' Equity Before Investing In A Company?

Business Well Being When Investing:

Business well-being is different for each company depending on the goals, objectives and vision. In general it incorporates a holistic approach focusing on multiple dimensions that reflects quality of products and or services, customer satisfaction, enough revenue, fewer liabilities, increasing profitability and appreciating stock market/dividends. Business well being is judged by using these dimensions to demonstrate the relationship between each while such business must actively strive to improve itself within each dimension to sustain the market competition. Whereas, capital structure is how business finances its overall daily operations and growth by using multiple sources of funds. Source of funds that facilitate capital structure of business is the mixture of business’s preferred equity, long term debt, common equity and short term debt.


As an investor, my favorite company that I will be attracted to invest in to will have to be a company with good essentials such as reasonable balance sheet that is compiled of a business's capital structure. I strongly believe that the strength of such balance sheet can be evaluated by the following three types of investments; i.e. capital structure, sufficient capital and asset performance. Balance sheet tells us the business’s capital structure as to how it finances its overall daily operations and growth by using multiple sources of funds, its net profit/loss, its investment, its assets, and its liabilities. Also, I will look at proportion of equity capital, as opposed to debt capital; if they are proportional then I will invest in such business; because a proportional business’s capital structure is an indication of financial strength of such business.

I think it does matters who you are and why you would like to invest in any company as an outside investor it is imperative to conduct extensive research and get to know the kind/nature, name, trade/trend, and status of the business before deciding to invest in any company because you are taking a risk to either gain or loose the investment. For government, Union/insider group member, an entity and or financial lender investors need to conduct extensive research and evaluate analysis of the business trend with relevant valuable information that can support their decisions. It will include analyzing record books, financial data, and information that can predict future of the company before investing.

Apple Inc:
Apple customers adored Mr. Jobs, but also they are big fan of Apple products because of the quality and unique style, design, innovation and marketing controlling it presents. We are human and we always strive to be different. It is in our gene that we want something stylish, elegant and hard for others to find; and Mr. Jobs as leader and his team managed well to capitalize on the customers who craving for uniqueness and sense of pride it brings to individuals.

Mr. Jobs was a person who understood what it means to be a leader and that made him not get drunk with powers it brings to individuals and in results not become an arrogant and out of touch like many leaders have turn, especially in the political leadership. To do so Mr. Jobs knew that a good leader needs good team and good structure, he lead by example and not by imposing powers. It is true that it can be difficult to replace him because he was unique CEO who understood what a regular client wants unlike many who turn to into elites.

I came across an interesting finding about Apple Computer. Apple company, is worth more than the following: all the gold at the New York federal reserve, according to Alex Jones, the New York Federal Reserve, the largest store of gold bullion in the US and in the world with stock-pile approximately 7,000 tons of gold worth about $350 billion US Dollar; or the entire Singapore economy; the GDP of Denmark; or Every single home in Atlanta, Georgia combined; or Every home in Detroit and Tampa combined; or All 32 Euro-zone banks; or The entire National Football League times 10. (http://powerwall.msnbc.msn.com/tech/things-apple-is-worth-more-than-10896.gallery?photoId=45740)

These are few things that stuck in our brain that could be worth more than a single company. It shows how important to research financial data/info about company before deciding to invest because sometimes conventional wisdom is not at all applicable in the financial decisions, rather professional advice and carefully researching and thorough analysis.

JNJ & Pfizer:
I believe that the major competitor of JNJ Company is Pfizer. Pfizer conducts biomedical research that brings about innovative medicines to the markets faster.  It has been successful establishing Pharma-Therapeutics Research and Development Group (that focuses on the finding of small molecules and related modalities) and Bio-Therapeutics Research and Development Group (that focuses on large molecule research and vaccines) as research organizations. Pfizer concentrates on its nine assorted health care businesses such as oncology, animal healthcare, primary are, emergency markets, specialty care, established products, nutrition, capsugel, and consumer Healthcare. (http://www.pfizer.com/about/leadership_and_structure/leadership_structure.jsp)

Whereas JNJ does stack up against Pfizer and all other competitors by producing a must-have domestic and healthcare institution products. JNJ products are vastly diversified, such products are categorized as recent products (newly innovated products from extensive research done by JNJ), Consumer Products (a must have products produces for domestic needs), Medical Devices & Diagnostics (a must have products for institutions like Hospitals), and Prescription Products (regulated products that only prescribed by a certified licensed professional under the law). I personally like JNJ’s slogan statements “Your family’s health and well-being is our passion” (http://www.jnj.com/connect/healthcare-products)  

Exxon Mobile:
I looked at Exxon Mobil’s overall well being and I examined its capital structure through and financial data like its balance sheet and the future demand of its petroleum-based products, I see growth and pro-growth signs in the future. Even if global recession keeps on persisting Exxon Mobile will sustain, though at small profit margin. The demand for its product is not shrinking anytime soon because there is no a serous alternative to its product with pro-growth signs so far. Here is the 5 year financial summary history of Exxon Mobile:

Its sales and all other operating income includes sales-based taxes of $28,547 million for 2010, $25,936 million for 2009, $34,508 million for 2008, $31,728 million for 2007 and $30,381 million for 2006 (Exxon Mobile financial summary- (millions of dollars, except per share amounts).

Its total debt (Debt net of cash, excluding restricted cash) is 2010 $ 15,014, 2009 $ 9,605, 2008 $ 9,425, 2007 $ 9,566, and 2006 $ 8,347. Very small debt compare with huge income with minimal liabilities.  

Its shareholder earnings per common share is 2010 $ 6.24, 2009 $ 3.99, 2008 $ 8.70, 2007 $ 7.31 and 2006 $ 6.64. It is projecting growth in spite of the global recessions since 2008.  More about Exxon Mobile financial info go the link bellow. (http://www.exxonmobil.com/Corporate/Files/news_pub_ir_financial_2010.pdf)

Investing:
As an investor I will look for a company with good reasonable balance sheet that is compiled of a business's capital structure. On the balance sheet I will look for three types of investments; i.e. capital structure, sufficient capital and asset performance. Also I will evaluate the Balance sheet if it tells me the business’s capital structure as to how it finances its overall daily operations and growth by using multiple sources of funds, its net profit/loss, its investment, its assets, and its liabilities. Lastly, I will have to be confident that the business has proportion of equity capital, as opposed to debt capital; if they are proportional then I will invest in such business because a proportional business’s capital structure is an indication of financial strength of such business.

Investing is like trusting the management and the company with your money, hoping that they will take good care of it, you will do that to an individual person, likewise, it is imperative to the company. I will add that also, me personally, I will also look at the products, nature of the business and time in which we are living. For example a company like Apple, Microsoft, Facebook, Google, GE and companies producing viable electronics demands are not going anywhere anytime soon; but companies producing products like CDs, stand alone Camera, and Movie Theaters are facing threats of not been around soon; unless they vigorously transform and adopt to new demands consistently as time shifts. I did not forget the black-diamond, crude oil, it is subject to economic growth in all aspects because economic growth needs transportation and oil is the only sustainable energy for trepidation now and forcible future. My opinion.

It is imperative for layman to go the professional, in this case CPA, before investing or cashing out investments in any company or institution. I remember listening to David Ramsey money marketing radio show, in the aftermath of the past recession; so many people lost their money because they acted alone and go cash out their investment accounts when stocks were plummeting, trying to avoid more loss. In results, they paid higher tax because the recession-tax break was not instituted then, they sold their investment when market was very low now they want to reinvest while market is up in the roof, and they have spent some of their investments because they had cash-on-hand and readily accessible. To cut long story short, they gain up to 50% loss of their investment for such one time single minded action that no possible way a professional could advice to do so. Accounting professional fee could save such people from a lot of havoc and loss they endured from one time less than an hour decisions. I was surprised that some people cashed out from one stock and invest in another by just watching marketing fluctuating, in result; they paid fees that were unnecessary and did not gain rather loose. I think watching markets fluctuation is headache and heartbreaking, as investor, let the CPA do their jobs and watch it occasionally and not hourly, or don’t act upon without consulting a CPA/accounting professional; that is why they are there for. My opinion.

While thinking about investing, I would first like to distinct Growth investor as someone investing as means to increase value his/reinvestment, and income investor as someone investing as means money coming in from such investment. Have been saying that, I will prefer to invest in both “growth investment” and “income investment”. “Growth investment” because I’m about 30 years before I retire and I’m in no hurry, good example here is capital gain after selling the stock share; and “income investment”  earned interest in fixed percentage/dividends from the money invested, good example here is Certificate of Deposit or Bonds. I don’t like to put all eggs on a single basket, rather to diversify my portfolio and minimize damage that can be caused by markets downfalls, inflations and recessions.

December 2011

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