 I get a lot of questions of how to read the balance sheet. Now, a balance sheet is a set of numbers and let me tell you immediately the truth and I'm a PhD, I know all the formulas, I know all the numbers. The numbers mean nothing, the ratios mean nothing and I want to illustrate that on Facebook's balance sheet to show you how what you think matters, not what the number says, not what the ratio, what you think about the number and what's beyond that number is that matters. Let's dig into Facebook's balance sheet. A good way to look at balance sheets, financials and get immediately what you want is to go to Morningstar, you go to Morningstar.com, key ratios, financials, you have everything there for free for the last five years at least. Now let's take a look at the asset side and that's of the balance sheet and that's what the company uses, the assets to do business. So what are they using to do their business? Let's start from the top. Cash and cash equivalents 8.9 billion, short-term investments, usually short-term bonds or something like that, 20 billion. So total cash they could immediately get is 30 billion. What's especially nice to see is that Facebook is very cash flow positive. They increased their cash from 9 billion to the current 40 billion, which is extremely positive for a company. So all the current assets are mostly in cash. Cash is always the king. If you own cash, that's it. You don't argue with cash, except now I'm already going beyond the number, except if that cash is abroad. If that cash is outside the US, you have a repatriation text that tells you that if you want to bring that cash to the US and pay a dividend, you have to pay 35 percent taxes. So you again see how the number of the balance sheet isn't always what you think. You see all that 40 billion in cash, bum. Repatriation tax is not 30 billion, it's 20 billion. Therefore, all the ratios you use are practically futile because you need to know the number behind and you have to make an opinion about what's behind that number. That's unfortunate, but that is so. If not, we would have computers analyzing investing, doing everything for us. And thankfully, that's not the case. Going down on the property plan and equipment, you can see how gross property plan and equipment is 11 billion. I want to see what's behind that gross property plan and equipment. Here I have a segmentation, land, buildings, and the highest value is network equipment. So if you look at the company and you say, okay, 11 billion depreciation, 8.5 billion, but 5 billion of that is network equipment. Can they sell that? Is that value or it will just get depreciated? So again, you have to see what's beyond that number. Network equipment is much less valuable than real estate because real estate will go up in value. Network equipment will be depreciated in a few years because there will be something new that comes. So very interesting how those things evolve and what the number beyond that tells you. Always look beyond, make an opinion, and then make your own ratios. You can have an advantage, especially when you learn how to deal with that. Secondly, here there is again something. Look at the Goodwill. Goodwill was 587 million in 2012, 839 million in 2013. In 2014 it went to almost 18 billion. How come? Well, they bought WhatsApp. They paid 19 billion, the value of WhatsApp, they increased from zero to the fair value of 1 billion, accounted for the 1 billion in the asset side, and then 18 billion was left to for Goodwill. Now the question is, do you think WhatsApp is valued at 18 billion? Is it a long-term value, the intangible, or it will be impaired in the future? As long as people use WhatsApp, the value is there. So I always think for other companies, what's there in that Goodwill? Is it value? Is it risky? Is it not risky, is it valuable, or not? Extremely important to see how that works. Going to the liability side, you can see that shareholders' equity is extremely high because Facebook has practically no debt. So this is very easy to look at, no debt, no long-term debt, or minimal, which means that the assets is what you have to look at Facebook. If there is a lot of liabilities, then the shareholders' equity can be also zero. If there is a lot of Goodwill, then the shareholder equity can be very quickly negative, which increases the risks. If we look at the financials, also in Morningstar, you can see how the revenue developed, which is extremely positive, growth revenue, net income, extreme growth, amazing company, share increased thanks to the purchases of Oculus, WhatsApp, now to 3 billion. Okay, that's something not nice, but with the growth that they showed, very, very interesting. You can give them credit for that. Book value also increased. Everything is positive. Operating cash flow with huge capex is not that great. All of this shows how an amazing business Facebook is. I'll make a special video about Facebook because I think still it could be one of the best long-term investments. People love to share those photos and they hang on that site forever. Very interesting. Even if I don't like it, I have set up Facebook, but I will probably close it down. So to conclude, unfortunately, there are no miracle formulas. It's all about what you think, what is beyond that number. Everybody gets the number. Every computer screen and every software gets the number is what you think is the value of what's beyond the number that is essential to read the balance sheet and then make your own program, your own table, your own calculation, and then you have something. So unfortunately, no miracle formula, but is what you think is beyond and what you see beyond that number. We'll be continuing to discussing such interesting deals. Maybe we'll look at a company that bought the property, real estate property 30 years ago that's not revalued. And then you can see how the number can be much higher. The value can be much higher than what is on the balance sheet. Subscribe if you like the content. Then if you haven't subscribed yet, click like and leave your comments below questions, ideas. What do you think about WhatsApp? Is it valuable? Is it not valuable? Should it be impaired or not? They still are not making a profit there. Thank you for watching and I'll see you in the next video.