FINANCIAL ANALYSIS: THE BIG PICTURE
After studying this chapter, you should be able to:
- Understand the concept of sustainable income.
- Indicate how irregular items are presented.
- Explain the concept of comprehensive income.
- Describe and apply horizontal analysis.
- Describe and apply vertical analysis.
- Identify and compute ratios used in analyzing a company's liquidity, solvency, and profitability.
- Understand the concept of quality of earnings.
IT PAYS TO BE PATIENT
A recent issue of Forbes magazine listed Warren Buffett as the richest person in the world. His estimated wealth was $62 billion, give or take a few million. How much is $62 billion? If you invested $62 billion in an investment earning just 4%, you could spend $6.8 million per day—every day—forever.
So, how does Buffett spend his money? Basically, he doesn't! He still lives in the same house that he purchased in Omaha, Nebraska, in 1958 for $31,500. He still drives his own car (a Cadillac DTS). And, in case you were thinking that his kids are riding the road to Easy Street, ...