In 2001, I arrived in the UK eager to look at leading global companies.


One was GE, led by the late Jack Welch, who had just published a book, “Jack: Straight from the gut” about his “career running one of the largest and most successful corporations”

The stock sold at 15x earnings – seemed fair value for a “wonderful business run by brilliant management”

Cash from operating activities of $32bn less capex for equipment of $15bn = free cash flow of $16bn

(although we didn’t talk about free cash flow back then)

ROE was 27%

And a payout ratio of 50%

I could use the historic EPS trajectory as a ruler – linear growth of 15% p/a and on track for $11 per share

maybe there was something to this Sustainable Growth Rate (SGR) formula

But then I looked at the balance sheet

And saw $80bn in “All other assets”

Back when $80bn was a big number

Refer note 17

Which revealed only ½ a page of numbers totalling… $80bn

including 3 more “Others” = $14bn

oh yes, and “advances to associated companies which are non-controlled, non-consolidated equity investments” of $14bn

But equity was only $54bn, so $80bn is material

How can it only be ½ a page of numbers without any detail?

But look at the cash flow, Sean

Ah, but in my auditing days (and when auditors could still do this), I had the unenviable task of compiling the Consolidated Cash Flow Statement for a large group with international subsidiaries

I was told it was a bit “beyond the accountant”

well in truth it was more than a bit “beyond me”

but after a few sleepless nights (and camomile tea to help the stress)

It somehow balanced

And I learned that a cash flow statement is the link between the income statement & the balance sheet

And if you can’t trust a balance sheet, don’t waste your time on the cash flow

I never bought GE

And 20 years later after endless restructuring and > $50bn of write-offs, shareholders equity is only $37bn

the share price has halved

and $11 of EPS is a dream

Might as well ditch the SGR formula

So what’s your point ?

Chinese Tech specialise in big numbers on the balance sheet with very little detail

BABA has $56bn in “Goodwill & intangibles” and $15bn in “Prepayments, receivables and other assets”

“Tradenames, trademarks and domain names” increased by RMB13bn ($2bn) last year?


I can register a trademark for £395 in the UK & a GoDaddy domain name costs £1?

What on earth cost $2bn?

Tencent’s 30th June 2021 Semi-annual report Balance sheet disclosed:

Intangible assets of RMB 162bn ($25bn) but no note

Only 3 notes (8,9,10) covered RMB 1.186trn ($184bn) of non-current assets

Barely 4 pages about their investments with no comprehensive list of:

-the names or
-number of shares held or
-prices / PE multiples at which they are valued at


Just 4 pages with some big numbers and scant detail

and rising debt levels

Camomile tea might not be enough when these stocks really unravel