Maybe or Maybe not!
Because the total assets or total liabilities are a part of a balance sheet.
And,sometimes the value of assets mentioned in the balance sheet is different in reality.
What do I mean by this statement?
Let’s take an example:
What’s the biggest asset of Infosys? Here’s the screenshot of Infosys’ balance sheet. Have a look and tell me.
( Fig: Infosys Balance Sheet 2012)
Cash and bank balances seems to be the biggest asset on Infosys’ balance sheet, right?
Is market giving high value to this cash and bank balance?
I think the main asset—human resources—is not mentioned on Infosys’ balance sheet and the market is giving value to its human capital too.
Now, let’s come back to ONGC and Page Industries case.
Here’s ONGC’s Balance sheet:
( Fig: ONGC Balance Sheet 2012)
And this is Page Industries balance sheet
( Fig: Page Industries Balance Sheet 2012)
Please note that ONGC balance sheet figures are in Rs.millions and Page Industries figures are in rupees.
Now, let’s compare these two balance sheets:
1. All figures including cash, inventories and fixed assets figures are much bigger in ONGC case compared to Page Industries.
2. Even Shareholder’s funds (share capital +reserves and surplus) are much bigger in ONGC case compared to Page Industries.
So, you’ll say, ONGC must be a better investment than Page Industries, right?
Do you really think “Bigger is better”?
Let’s see some facts.
1. Return on Equity
Firstly, let’s check the ROE % for last 5 years for ONGC and Page Industries:
Return on Equity (ROE) is increasing year after year for Page Industries – in 2007 the ROE was 25.14% and in 2012 it was 62.15%, more than double in last 5 years.
In case of ONGC, ROE in 2007 was 23.87% and in 2012, it is 22.24%, almost same.
Had you bought 100 shares of ONGC in 2007 at Rs.310 = Total investment would have been – 100 x 310 = Rs.31000
and now, if you check the value of your investment it would be = 100 x 273( 30th October,2012 price) = Rs.27300.
Page industries, same investment in 2007 – 100 shares at Rs.390 = Rs.39000
and now, the value of your investment is = 100 x 3445 = Rs.344500.
See, which investment is giving you more returns at this stage.
Do you still think “Bigger is better” ? 🙂
Well, one more point for you to note- The two companies are not comparable. Why?
Because ONGC is from oil exploration sector and Page industries is from Textiles(Readymade apparels) industry.
Always remember, comparison should be with the peers in the same industry/sector.
Are you still making this mistake?
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