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No. of Recommendations: 5
If I look at the recent quarterly reports for MO & GT and divide the shares outstanding into their equity, MO has a value of $6.72/share while GT's is
$23.53/share. This would tell me that I should stick with GT rather than jumping on MO. Is this a good ratio to look at? Am I looking at this right?

Frankly, I don't think that tells you much of anything. Stockholder's Equity is an accounting function (assets - liabilities) that, by itself, says little about a business.

Consider these examples of two companies with 100 shares of outstanding stock:

Company 1 has:
$500 in cash,
$100 in AR,
$100 in inventories,
$1,300 in long-term assets,
$500 in short term liabilities, and
$500 in long term liabilities.

Thus, $1,000 in Stockholder's Equity ( ($500+$100+$100+$1,300) - ($500+$500) ), or $10/share.

Company 2 has:
$100 in cash,
$300 in AR,
$300 in inventories,
$1,300 in long-term assets,
$200 in short-term liabilities, and
$400 in long-term liabilities

Thus, $1,400 in SE, or $14/share.

So, Company 2 is the one to invest in, right? Wrong.

Company 2 has an awful cash-l.t. debt ratio of 0.25 and an awful Flow ratio of 3.00. Company 2 doesn't have the cash to grow internally, and probably can't take on more debt to expand.

Meanwhile, Company 1 has a cash-l.t. debt ratio of 1.00, and a tremendous Flow of 0.40. It is a sleek machine that takes in cash but doesn't have to pay its creditors until later.

Note that this is just one Balance Sheet. It's doesn't begin to consider long-term trends, growth rates, Income Statements or Statements of Cash Flow.

In other words, if you're thinking of ditching one stock for another, you should be prepared to some serious analysis. Otherwise, picking MO over GT is little more than a WAG (the GAAP-sanctioned acronym for Wild Ass Guess).

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