Things I Learned Today: Current Assets and Fortress Balance Sheet

I want to be an informed equities investor, who can look at a company's numbers and tell myself whether I want to discard this counter and move on to the next or not.

I don't want to be someone who just throws his hard-earned money (yes, my money has been really hard-earned) into the market and then get a suboptimal results, or worse, lose itm

I need to increase my accounting knowledge.

Balance Sheet

Today I read about Balance Sheet (I've been acquainted on Balance Sheet a few months back, but now I want to dive even deeper).

In a Balance Sheet, you have 3 sections

• Assets
• Liabilities
• Shareholder Equity

Assets must equal to Liabilities and Shareholders Equity. Assets = Liabilities + Shareholder Equity

In each of these three components, there are many more subheadings that constitute what the components are. It's important to understand at least what those components mean.

Current Assets

Specifically today, I read about Current Assets.

Listed under Assets, Current Assets is where the company's cash and cash equivalents can be deployed as cash within 12 months.

Notably, in the page I read, there are companies that have a policy to hoard lots of cash. These companies are said to adhere to Fortress Balance Sheet philosophy. Such companies include Berkshire Hathaway and Nintendo.

I did a quick Google on "Fortress Balance Sheet" and apparently such term is not only confined to companies. With fiscal discipline, an individual can also have a Fortress Balance Sheet, where he/she can weather short or even medium term unfavorable circumstances if it ever happens, and can commit more of his earnings towards investments.

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Back to Current Assets, and Fortress Balance Sheet aside, it is important to know that not all Current Assets items listed are equal. Even though in principle they should be able to be liquidated within 12 months. Some Current Asset items can take longer to liquidate and some can actually carry a rather dissimilar risk versus others.

Also, the Current Assets can be inflated with a lot of cash, not due to the payments it received from rendering services or selling products, but rather from external loans. An investor might need to check another section of the Balance Sheet, under Liabilities, to see if this is (not) the case.

Simply put, while having a healthy Balance Sheet can seem favorable, it still can be manipulated to hide certain facts. Therefore, it's important for an investor to understand what they're reading and what to watch out for.


Till then, stay knowledgable, stay invested.