Stocks and Shares For A Dummy!

IronWolf

Firstly, you need to subtract all liabilities from assets to get net assets, and also subtract intangible assets as these usually have no resale value.

The way a balance sheet works is it records what the company paid for the asset, minus any depreciation. So you can have one of two scenarios. Either the company bought something that is now worth far less, such as specialised equipment or inventories. Or they have things they paid for that are now worth considerably more, e.g. buying a property 30 years ago which is now worth more.

Neither of these are accounted for on the balance sheet. You also have false assets like deferred tax, thats only an asset if you make money in the future, you can't cash it in during liquidation.

Even after you correct for all that, there are occasions when you can buy a company for less than you can liquidate it for, in fact many companies invested like this in the 80s, buying cheap struggling companies and liquidating for a tidy profit.

With the new computer age its far easier to find these types of bargains so there are fewer around where the share price stays low, most in difficult times have no liquidation values as debts are high.

middlepuss

Novice investor? And you're thinking of investing in a single company? And you've alighted upon Thorntons as the best investment opportunity in the whole wide world?

1. Take a cold shower.

2. Put a bit of money into something boring like an index tracker unit trust (eg HSBC or Fidelity).

3. Watch what happens to your investment for 6 months.

4. Figure out if ISAs and/or SIPPs are right for you.

5. Invest in other collective funds - unit trusts, investment trusts etc within your ISA and/or SIPP.

6. In a couple of years' time, invest no more than 5% of your portfolio in a single share. Thorntons if you really must - but I doubt you will conclude in 2 years' time that Thorntons was/is the best investment you could possibly make. (Just read your other posts - it took you rather less than 2 years to realise Thorntons wasn't a good idea!)