Hello, friends, in today’s article, we see Chapter 12 of the intelligent investor book. In this chapter, the author explains the things to consider about per-share earnings. Chapter 12 of the intelligent investor book gives us the right path to consider the EPS. let’s see
Previous Chapter 11: Click here
Things to consider about the per share Earnings:-Intelligent Investor: Chapter 12
The author explains to us that we do not consider the EPS price on the balance sheet. so to consider the right way is are following. let’s see one by one
Reported Earnings Problem:- Intelligent Investor: Chapter 12
- Ignore Pro-forma financial statements: First of all, ignore the financial statement about the EPS because behind that we don’t know the reason.
- Consider the effect of dilution by stock options: you have to consider what happens when stock is diluted on EPS.
- Unrealistic assumption of return on Pension Funds: If the company assumes some profit from the pension funds, then it’s the cause of concern for the investor. Because these pension funds do not stay for a longer time. (Intelligent Investor: Chapter 12)
- Special hiding liabilities of the balance sheet: you have to check the purpose of doing this activity.
- Capitalizing expenses as assets: You have to check to capitalize expense, and if the company considers this is an asset for the company. It’s is cause for concern.
- Provision to carry-forward tax: If you check the provision to carry forward tax, and get the is there some way, then it’s maybe helpful to the company. and also check for the 10 to 20 years of provision of tax.
above-mentioned points that is come in the problem when we check for the EPS and the author gives us some normalized EPS.
Calculate an average of 7 to 10 years of earnings, or over the span of the business cycle. Then divide by Share of outstanding to get normalized EPS. (Intelligent Investor: Chapter 12)
If you want to become an enterprising investor, you have to do an effect on understanding the financial report and check the right reason for writing this. and also check for the purpose behind that. For this reason in this book Three books are referred to learn more about the financial statements, with some tips, let’s see one by one
Some tips:
- you can read the annual report backward
- You can read the notes to financial statements
- Read more to increase your knowledge
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- Financial statements analysis- Martin fridson and fermards
- The Financial numbers Game- Charles Mulford and Eugene
- Financial shenanigans- Howord shilit
- Interpretation of financial statement- author( Benjamin gram)
Follow these steps to get a good company EPS. Learn more about accounting, because warren buffet says ” Accounting is the language of business, those speak well do better business.”
This is all about Chapter 12 of the intelligent investor book.
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