Chapter 3. Financial Strength
Understanding financial strength and appreciating its importance is perhaps the most vital lesson for value investors. While assessing financial strength can be a complex and often difficult task, it is a sure-fire way to improve investment results over time.
Assessing financial strength requires a multi-faceted approach. This is especially important to emphasise at the start. Too many investors think that financial strength is just about the amount of debt on the balance sheet, or that it can be assessed by looking at a single metric.
Unfortunately, things are not that simple. There are many potential problem liabilities other than debt, some of which may not even be on the balance sheet. And a ...