Hi We have come to our last article Analysing Financial Statements. Today we will be looking Equity. A simple definition of equity would be the value of the asset after the liabilities or debts have been paid. Equity can also be the stock you own in the business. This is called shareholders’ equity. These stocks represent an ownership in a business. It is the measure of the company’s net worth. A …
Read MoreAnalysing Financial Statements – Long Term Liabilities ( 5 of 6 )
In our continuation of our series of articles on Financial Statements, today we will touch on Long-Term Liabilities. The second classification of liability is called Long-Term Liability. As mentioned in my last article, a long-term liability is money owed by a business that must be paid beyond a company’s operating cycle. In other words, it is debt that is due beyond a one year period. Current Liabilities Debts that must …
Read MoreUnderstanding Financial Ratios
Numbers in the financial statements by itself gives us a decent understanding of the business. But as Albert Einstein mentioned, “All things are relative”. A business making $1million consistently may sound like a good business until you realize that the business requires $100million of capital to operate. Such a business only gives 1% return. We might as well put our money in long term bonds which carries minimum risk. …
Read MoreAnalysing Financial Statements – Liabilities ( 4 of 6 )
Hi Investors, Over the past 2 months, we have written articles to explain the components of a balance sheet which shows the extent of entity ownership of assets, liability and equity at a given point in time; a net worth statement for a company. Today we focus on Liabilities. Liabilities are amounts of money you owe to creditors in the form of bills that are due, bank loans you have taken …
Read MoreHow to Read Letters in Annual Reports
To help us put things into context, I want to share a story of a friend of mine, Bruce. Bruce is a brilliant entrepreneur and businessman. One of his cash producing business is a chain of retail shops selling mainly earrings. The story in summary is that Bruce left his job as an auditor at one of the Big 4 Audit firms and started his chain of shops, all starting …
Read MoreAnalysing Financial Statements – Long Term Assets ( 3 of 6)
Hi Investors In our third article, we focus on long term assets (non-current assets). The long term asset category of a classified balance sheet appears immediately after the current assets. Non-current assets are assets that are not turned into cash easily, are expected to be turned into cash within a year and/or have a lifespan of more than a year. Classifications Of Assets On The Balance Sheet Current Assets Read …
Read MoreAssessing Business (Fundamental Analysis)
Welcome to the main investment method Business Analysis or fundamental analysis. The key idea of fundamental analysis is to analyze the stock for what is really is, a business. In simple terms, this can be known as Business Analysis. Ultimately, when we buy a stock, we are in fact buying the business itself. To purchase an entire business can be very costly, so what the stock market provides for …
Read MoreAnalysing Financial Statements – Assets ( Part 2 of 6)
Hi Investors, We are into our second part of the articles focusing on important components of a balance sheet. A recap of a balance sheet. It is a snap short of the company’s financial conditions on a particular date. Conceptually, the balance sheet is based on the accounting equation, which states that the total amount of assets must balance the total amount of liabilities and owner’s equity. Assets = Liabilities + Owner’s Equity. …
Read MoreDo Value Investors look at Charts? – The Truth!
During my sharing, it is a common question I get from the audience, “Do Value Investors look at chart?” The truth is… I don’t know really. But since I used to look at charts and use technical analysis before I learnt about Value Investing, I would like to share my personal opinion. Looking back, looking at charts gives me a snap shot of how the market perceive the price of …
Read MoreAnalysing Financial Statements – Balance Sheet ( Part 1 of 6)
Hi Investors, As Warren Buffett quoted “Account is the Language of Business .You have to understand accounting. Unless you put the effort to learn accounting – how to read and interpret financial statements – you shouldn’t select stocks yourself”. The accounting balance sheet is one of the major financial statements used by accountants and business owners. (The other major financial statements are the income statement and statement of cash flows, …
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