Balance Sheet Analysis: First or Worst?

In the old days of 30 years ago, the best starting point for financial analysis was the balance sheet. From the balance sheet it was fairly clear what the liquidation value was as a starting point. For example, when I initially looked at Home Depot in the 90s, I could figure out their property values and know that in a worst case scenario these properties could be liquidated as a basis for a "margin of safety." Further, the balance sheet would also provide an indication of what replacement costs might look like and the structural investment required to be in a business. Of course, famously the textile mills of Berkshire Hathaway demonstrated the fallacy of relying on balance sheets. Those huge asset values with high replacement costs simple ate capital.

Over time as the economy has morphed from "real" assets to "digital" assets, the balance sheet analysis has delivered less and less value. The software writing which is critical to creating the assets is often expensed. Further, when digital assets are capitalized, they are exceptionally difficult to amortize correctly. While manufacturing equipment was not easy, computing equipment with the rapidity of change is even more challenging. Instead, I think the first step is to establish is a company best analyzed with a balance sheet approach or a cash flow approach. Clearly, banks, mineral companies and insurance companies are balance sheet companies. All the others should likely follow the example of Jeff Bezos with an emphasis on cash flow.