How to Analyze a Balance Sheet Like a Hedge Fund Analyst

This video covers how to analyze a balance sheet like a hedge fund analyst. The balance sheet is one of the key financials statements that investors need to analyze as part of research companies and is an important part of the stock research process.
After watching this video, you will have a better understanding of the following topics: how to analyze a balance sheet, how to read a balance sheet, financial statement analysis, how to research a stock, what is a balance sheet, the income statement, the cash flow statement, and value investing
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[@InvestorCenter]

I just uploaded the spreadsheets I used in this video to my Patreon. My Patreon is where I will be uploading all of my analysis tools and spreadsheets. Check it out here: www.patreon.com/user?u=38414104

[@winston-salemconcretelocal6728]

Beautifully articulated, creative, comprehensive. Thanks a bunch, your efforts are highly appreciated!

[@genius_idiot7618]

Thanks. Came across your videos over the weekend and was curious if there would be a BS video soon. Great content. Keep up the good work. These videos are extremely important us little investors.

[@InvestorCenter]

You may be a “little” investor now, but I’m trying to make you a big time investor!!!

[@Dylanwindellor766]

Thank you for explained as an easily to understand for starting to investment in stock market it makes me to realize about before investing that you need to know about basically in stock. 👍

[@Longtack55]

AAPL holder here, and thanks for the refresher. I'll make some comparisons for the last few years.

[@BBFletcher4202]

Can listen to you all day. Thanks again. 🙌🏾

[@InvestorCenter]

Glad you enjoyed the video!

[@yomi001]

Great explanations! I love that you use real-world examples to help us understand the concepts.

[@InvestorCenter]

Thank you! Glad you found the video helpful!

[@manylch7964]

Excellent clear and concise explanation ... bravo

[@MuhammadRafiuddin9]

Your are the symbol of perception Too good 👍

[@focusrelax8838]

Really good, I like what you considered most important to look at the balance sheet and the ROE and also ROC. This kind of metrics on what’s worth looking at, what’s the most important and how to calculate and also if the higher the better or the lower the better it’s really good info you share for those who are self learning 🙏

[@focusrelax8838]

Peter lynch had something about it should be 70% at least , I think he talked about debt to equity that equity should at least be 70% higher than debt to consider it good, I think it was in his book beating the street, I need to reread it .

[@AR-pd3zu]

Excellent video, thanks so much it was very instructive.

[@KP-uj1wf]

Thx once again for your wonderful videos… so clear and easy to understand!

[@InvestorCenter]

Glad you enjoyed the video 😊

[@KP-uj1wf]

@@InvestorCenter I also went back and viewed your Cash Flow statement video. Another 10/10! I now use ‘Free Cash Flow Yield’ in my analysis. I find it very interesting when you compare companies in the same sector. It really shows which are the winners in that sector. Thx again!

[@felipe741]

Amazing. More like this please 🙏🙏

[@singhmaster4]

That was good. I couldn't wrap my head around some of it because of the terminology but if I brush up on it I will understand it 100%. I will save this video in my list. Thanks!

[@InvestorCenter]

Glad you enjoyed the video! Watching it a few times and you will learn more each time

[@singhmaster4]

@@InvestorCenter Is there a video you can refer to where I can learn this in depth? Should I look for videos focused on accounting? I have also subscribed to your channel.

[@amitparikh8340]

Excellent resource. TY.

[@cz7886]

Pure Gold!

[@Txyleo]

Excellent work 👍

[@garrettwilliams6908]

Nice video. A bit of an add-on, I do feel ROA is generally a better path to analyzing a firm's profitability over ROE, as it shows how efficient today's assets are at generating returns and avoids the potential manipulation of a firm buying back shares to improve ROE

[@ayodejiajilore7351]

Spot on.

[@yeswecan4312]

I would be very interested if you could do a benchmark analysis. What is a “good” ROE in different industries, What’s a good net margin? What’s a good, gross margin, etc.

[@ethanstraight3331]

I would recommend doing this yourself for practice. Fairly simply math here and also good practice looking at different firms balance sheets.

[@johnpatrick3458]

You are great! Thank you!

[@ryasaw519]

Thank you so much, I love your channel !

[@InvestorCenter]

Thank you for the kind comment 😊

[@bhs08002]

Instant subscribe. Great video!

[@KP-uj1wf]

Hi again. Are their any specific ratios you use to review and analyze REIT’s? Thx

[@ShubhamSharma-bw4io]

You are really teaching people true investing and not just ‘good to ear’ statements

[@kamaldas1338]

Exciting explanation 👌!Keep up the good work 👍

[@InvestorCenter]

Thanks a lot 😊

[@YAY11LLI]

Amazing!

[@jbrochon9556]

Thank you for the great content, I learned a lot. However, there is someting I don't understand. When I look at the Balance sheet for Apple using my bank web site some of the amounts match but have a totally different terminology. EX: Commercial Paper is called Notes payable / Short term debt". Why is there different terminology ? Another question I have is that some of the amounts you mention I just cant find them in the balance sheet. Do pltforms have different interpretations ?

[@kevinkant6817]

Another great video, thanks 🙏

[@InvestorCenter]

Thank you!!! 😊

[@jirehllc1793]

THANK YOU! Are you available as a guest speaker for Groups on a zoom meeting?

[@lauravolkman]

Great video as always!

[@InvestorCenter]

Thank you, Laura! Glad you enjoyed the video :)

[@pfuiteufel1385]

Thank you for your work and explanations, very much appreciate it. However, I don't understand why net-debt doesn't account for payables, liabilities and such. Isn't one being too generous with regards to a companies solvency that way? Thanks in advance.

[@leochen887]

FWIW, I slow the Playback speed from Normal to 0.75. This allows me to better absorb the material on my initial view of her video. And of course, I go back to her videos from time to time because I discover insights that I missed in the first iteration. So I guess that makes me a slow learner. But I'm okay with that. I'm a retired aerospace engineer who dedicated my career to the development of Advanced Combat Aircraft and our maintaining Air Superiority. Like a financial analyst, I also was trained to view Data as Being Everything and that Everything Is Data, with Balance Sheets being just one source of information/data. (Engineers do look at a vendor's balance sheet when we're trying to assess whether they are a risk.)

[@gauravthadanii]

lol i watch at 1.25

[@ponzianomanning3071]

Fantastic explanation! I can't Waite to watch Income statement.

[@InvestorCenter]

Thank you!

[@diamondgeezertunes]

Excellent content ...

[@monnombre6547]

thank you for this video!!!!!!

[@InvestorCenter]

You are welcome!!!!!!!!!!!!!

[@giannismns]

Incredible job. Just a question on 5:17. By true cash you mean free cash flow ?

[@candyfloss184]

Thank you

[@InvestorCenter]

Thank you! Long time not seeing a comment from you, friend!

[@carloslongo53]

ROE can be inflated by debt, though. Wouldn't it be better to use ROIC instead? By the way, how do you calculate ROIC? I know there are multiple ways that investors use. Like EBIT - Taxes / Equity + total debt +total operating leases - marketable securities (invested capital). While others just do EBIT / Equity + Net debt (or -Net cash)

[@fresh2def973]

Awesome educational content. You're killing it.

[@InvestorCenter]

Thank you, Jonathan!

[@prashanthkoundinya8385]

Nice explanation, keep it coming

[@InvestorCenter]

Thanks! I’m looking forward to putting out more helpful videos for you guys!

[@parmarpreyash683]

Awesome like to watch more like that

[@thestudentofdhandho5302]

Thanks for the insightful video. I recall Buffett & Munger decrying EBITDA as a suboptimal measure of genuine profitability as depreciation increases capex. What disadvantage do you see to using Net Debt to EBIT as an alternative?

[@InvestorCenter]

That is true. I personally think “owners earnings” is more relevant. This is a term that Buffett created. It is EBITDA - capital expenditures. It gives a more realistic view of a company’s ability to service debt while continuing to grow/maintain the businesses operations

[@thestudentofdhandho5302]

@@InvestorCenter oh that’s perfect. Thanks for the tip - I’ll add the net debt to owner’s earnings ratio to my analysis model

[@wunjo8586]

Hi! Can you explain where I can find the Gross Property Plant & Equipment? thank you!

[@Korocoran]

Excellent !

[@InvestorCenter]

Thank you!

[@GustavoSN]

9:49 Why do you ignore accounts payable and other current and non current liabilities when calculating the "true debt" of the company?

[@jeremy3195]

I saw the shareholders' equity of some company are negative (e.g. MSCI), what does it mean? and why will it happen?

[@hedwegg]

Stocks! Balance Sheet!

[@dbsk06]

Isn’t ROE based on book value not accurate if it differs from market value significantly ?

[@Sglingani]

Fantastic video thanks for that

[@InvestorCenter]

Glad it was helpful!

[@dbsk06]

11:43 is this a large net debt figure or not (compare with EBITDA, proxy for CFO) and look at peers in same industry

[@carlosnava2349]

Good

[@lazardjurovic2883]

Great stuff. I have a question for you. What do you think about investment analyst job? Do you guys work long shifts? Is it a high-paid job?

[@InvestorCenter]

Compared to the standard 35-40 hour work week, it is long hours. However, not nearly as long of hours as compared to investment bankers. In terms of compensation, I can’t complain lol

[@jimmyau56]

where do you look for balance sheets? on the companies website?

[@abassembatya]

I think you can as well use a 5w led bulb??? Thanks for the project

[@aljacksonartist]

Thank you! Very helpful video. But where can we find a company's balance sheet? And cash flow statement and income statements too? Thanks!

[@InvestorCenter]

Google the company’s name and “annual report” and you will be able to find it on the company’s website

[@aljacksonartist]

@@InvestorCenter Hey, thanks so much! I didn't know it was public info.

[@rainmaker704]

Great vid!

[@InvestorCenter]

Thank you 😊

[@businessmindedwolf730]

Great

[@InvestorCenter]

😊

[@andrey4970]

Appreciate

[@InvestorCenter]

Thank you!

[@chrisa.9977]

Where does common stock and preferred stock?

[@kidze31]

hi, how do I calculate how much a company reinvests its profit?

[@BSI_Inc.]

I'd like to ask something. What can count as true debts and true cash?

[@rabiehmoussa9854]

Super cool channel ! Keep it up

[@InvestorCenter]

Thank you so much!

[@mtoporovsky]

Masterworks is not stock...where u get info? For analyes?

[@vasanthakumarnagaraj308]

You awesome 🙂...

[@InvestorCenter]

Thank you! 😊

[@joseguerrero2221]

Hi, can anyone please explain to me what "Book Value" means? I'm reading Benjamin Graham's book The Intelligent Investor and can't figure out what it means. I'm pretty sure I didn't skip anything. And the internet seems to give me different definitions as to what it means.

[@louiecutamora2388]

Hello investor center. Just wanna ask. Your computation for true debt is adding loans ( commercial and terms debts ). Can you please tell, what happen to accounts payable and other current liab. why this is not part of your true debt. please. Thanks

[@InvestorCenter]

Very good question! Because those are short term in nature. If I were to include accounts payable and other current liabilities, I would also have to include accounts receivable and other current assets.

[@sigmadaddy106]

Hi, great video and great channel! 12:04 Why do you use EBITDA to calculate whether it's possible to support the debt? Is the influence of other CapEx and taxes not significant? What do you think about using FCF to estimate the possibility to take on additional debt in the future for leverage if the business supports it? Can we, with this logic, use FCF estimates along with cash and cash equivalents to estimate a margin of safety on the existing debt? Thanks in advance!

[@InvestorCenter]

Great question! The investment industry uses EBITDA but I personally think that EEBITDA minus Capex is a better metric to use and is a more conservative analysis.

[@InvestorCenter]

And just to follow up, the cash and cash equivalents is already factored into the denominator of the equation. The “net debt” number factors in cash the company has

[@hodoprime]

I would rather use EBIT. Interest can be restructured. Debt is paid before taxes(thus interest is prioritized over tax). DA gives you a good idea of capital requirements to keep a company afloat so that need to remain in the calculation. Capex can vastly exceed maintenance levels so I would not use capex or FCF.

[@davidngo8229]

Hi @InvestorCenter, I have a question about calculating the numbers. How come you only select certain numbers to calculate? Why not take the totals of each? Example, in Liabilities, you only choose Commercial Paper, Term Debt Current and Term Debt Non-Current. Why not take total current liabilities and total liabilities numbers?

[@kk_3354]

Because those are the debts you are obligated to pay first, you could go default if you don’t pay

[@gauravthadanii]

@@kk_3354 also because those are the debts you pay with your cash others not necessarily

[@Gitohandro]

Do you offer consultations?

[@dbsk06]

4:59 true cash

[@yakopro49]

Warren Buffet your a Legend. If I were a marvel top executive, I would make you a heroic character in a video game or movie.

[@Faloudelphia]

Very well. I wish I could have lunch with the person who did this presentation.

[@darylallen2485]

1:08 - I don't agree with this. If you take out a loan, its a liability, but the cash you have from the loan is also an asset. If assets and liabilities are opposites, why can they be represented as an asset and liability at the same time on a balance sheet?

[@reeceshaw9717]

This is a great video even though I got baited with Warren Buffets face

[@airepublic9864]

Can it be programmed?

[@NotNoseBlind]

Oracle of Omaha he the truth - this video is a must watch

[@LifeMasteryPodcastStevenArecco]

@ 7min 45 sec. apples PP&E % of sales is 9.275% not 11% unless my math is wrong. Please verify?

[@financialwisdom432]

this is heavy stuff. I have to watch this probably like 3 times

[@ralphtozier9682]

What do you do with good will? It seems like it should not ever be on a balance sheet since it is such a wild guess.

[@InvestorCenter]

You are right. Personally, I ignore goodwill

[@georgeturner6244]

Reduce shown equity by goodwill is a useful approach to me.

[@zhyarjalal4179]

can i pay a professional financial analyst to analyze the whole company statements for me?

[@giuseppesiragusass]

Why do we use net debt/ebitda and not debt/earnings?

[@InvestorCenter]

Good question. This is because earnings can be distorted due to accounting. While EBITDA is a more close approximation of a company's cash it generates to be able to pay its debt

[@anhnguyenhong8770]

You need to study into Balance Sheet like Mr. Buffett.

[@williamdavis9943]

He doesn't give this advice for free you can believe that. Even when he is not out to make money he is making money.

[@T_m_m170]

I follow the American coordinator. I think someone in America will brake on if anyone goes too far.

[@mustafaalwan6523]

Apple has much higher ROE because the huge amount of intangiblity i.e brand name and customer loyalty . You take that of the equation and you can calculate the buffet's return which how much capital is able to generate without intangible asset . Furthermore you can deduce that how much the intangiblity is an important factor in the case of apple of KO.

[@gauravthadanii]

hey can you explain in more detail, cause i am a little confused. how does intangible assets affect this?

[@bigthing3984]

Everything is good but if you could explain it at a slower pace, people could understand better having some space to think for few seconds.

[@wesleyg2403]

Fun fact: in dutch balance sheets, the least liquid asset is on top and the most liquid asset is on the bottom. Same for the passiva side (forgot the name for the other side of the balance sheet in english).

[@kliquein]

5:00 you mean MIllions

[@joncarr1200]

This is what they will never teach us in school. At least, not unless you take a specific class.

[@InvestorCenter]

Thank you, Jon! I’m glad I can be helpful:)

[@CapitalWorksPro]

EBITDA is not a good proxy for cash flow. Please don't tell people that it is.

[@wuziwu8148]

I thought I was supposed to learn how to analyze a balance sheet like a hedge fund manager? Okay.. Then why are we going back to ABC's of investing with what an asset and liability are.....? Not even 2 minutes into the video and I can't take the title seriously.

[@WPaKFamily]

That was a huge blunder at the end comparing Apple and Samsung's ROE. Apple is loaded way more on debt (leveraged) than Samsung is. If Apple had at most a Debt/Equity Ratio of 1, their ROE would be about 60% or less (which is still a lot). However, it's not as simple as saying just adjust their D/E ratio. Their earnings since 2017 to ttm has been supported by lots of debt. So, really the ROE for Apple would be only a little more than Samsung's.

[@gauravthadanii]

yeah, I think I get your point. a better metric would be ROIC to measure the growth. which factors in both, debt and equity.

[@WPaKFamily]

@@gauravthadanii yep

[@SkankHuntForty2]

Hey, BABA's balance sheet looked really good, didn't it? It definitely fooled Charlie Munger. Thanks again for the shit call on BABA, Charlie.

[@businessman1060]

even though your videos is very interesting and good explanation but your voice is little bit low and you speak quickly make it difficult for non native English speakers to understand

[@tomv4855]

The numbers are being read wrong, everything should be "millions". So, instead of saying "Apple made 30 thousand in revenue", you should say "apple made 30 billion in revenue" (30 thousand million).

[@InvestorCenter]

I said towards the beginning that all numbers were in millions

[@theindianinvestor3240]

Robotic voice is the only issue with your channel, otherwise I think your channel has highly relevant and amazing content!

[@InvestorCenter]

What if I told you the voice wasn't a robot?

[@theindianinvestor3240]

@@InvestorCenter woooooow 😮! But this tone is so still like it goes in the same pitch throughout the video

[@olivermathiasen3594]

Kind of ironic that u show us a video About how to analyze a company. We do that to make sure they have a healthy business model, strong productivity and cash flow. Then u proceed to have an add about something, that can't either be analyzed or produce cash. What some investors would call speculation.

[@MrMichell12]

Also talk about how a stupid President polecy can affect the stock market!!Byyden🙋🙋🤣🤣🤣🤣

[@amandasettee8922]

to fast you lost me

[@Iamwrongbut]

.75x the speed the

[@user-zc8sq3wr9f]

***MasterWorks*** is a scam. Watch out!