Bullet Proof Balance Sheets

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While a focus on growth has always been in fashion, the advent of COVID-19 has enhanced the currency of balance sheets.  

I know this because an article I wrote with client Ken Berman of Gorilla Trades quickly generated more than 400,000 page views after we published it on Kiplinger.

The list of 25 companies includes predictable entries like Google, Amazon, Apple, which sport truly amazing balance sheets, but also fly-below-the-radar mid caps like data security firm Fortinet (FTNT), Cognex (CGNX), which develops machine visions systems, biotech’s Incyte (INCY) and Old Dominion Freight Lines (ODFL). 

Sometimes to understand whether or not a balance sheet was indeed brawny, I had to look beyond the numbers on the balance sheet and dig into the notes to the financial statements. With Paypal, for instance, the balance sheet showed a massive $25 billion liability, nearly half its’ total assets called Funds payable and amounts due to customers. What was this? It turned out to be funds Paypal accepted from payors that it had not yet distributed from payees. As this was simply a timing issues, the balance sheet could be viewed more realistically.

The article required some 40 hours of analysis, writing and editing or about a one hour investment for every 40,000 page views. This was well worth the effort in terms of thought leadership, and helping investors identify companies with the strength to weather the COVID-19 storm.

Common threads among the 25 companies was little to no long term debt, cash that was multiple of current liabilities, and dividend payouts that were just a fraction of net income.