Wednesday, November 5, 2008

Credit Analysis: Sanjay Bakshi - Lecture 12

Link to Professor Bakshi's 12th Lecture. He goes over an important lesson and filter from Ben Graham:
-
Graham’s Version of Debt-equity ratio:
-
Market Value of Enterprise/Debt
...
Why not use the conventional Debt/Equity ratio?
-
“The market value of stock is generally recognized as a
better index of the fair going concern value of a
business rather than balance sheet figures.”
...
The Graham Standard:
-
“Minimum stock equity at market prices for industrial bonds
should be at least 75% of total debt. This test must be passed
both currently and over the average of last five years.”
-