Financial Statements 101
I'll teach you how to analyze a
β’ Balance sheet
β’ Income Statement
β’ Cash Flow Statement
In 2 minutes:
I'll teach you how to analyze a
β’ Balance sheet
β’ Income Statement
β’ Cash Flow Statement
In 2 minutes:
1οΈβ£ Balance sheet
A balance consists of the following elements:
β’ Current Assets
β’ LT Assets
β’ Current Liabilities
β’ LT Liabilities
β’ Shareholders Equity
It shows you what the company owns and owes.
This statement is based on a simple formula:
Assets = Liabilities + Equity
A balance consists of the following elements:
β’ Current Assets
β’ LT Assets
β’ Current Liabilities
β’ LT Liabilities
β’ Shareholders Equity
It shows you what the company owns and owes.
This statement is based on a simple formula:
Assets = Liabilities + Equity
Questions to ask yourself:
β’ How much debt the company have?
β’ Does the company have more current assets and current liabilities?
β’ Does the company have a lot of goodwill on its balance sheet
β’ How much debt the company have?
β’ Does the company have more current assets and current liabilities?
β’ Does the company have a lot of goodwill on its balance sheet
2οΈβ£ Income Statement
An income statement shows you the income and expenses of a company.
Revenue
- COGS
= Gross Profit
- Operating Expenses
= Operating Income
- Non-Operating Income/Expenses
= Pre-Tax Income
- Taxes
= Net Income
An income statement shows you the income and expenses of a company.
Revenue
- COGS
= Gross Profit
- Operating Expenses
= Operating Income
- Non-Operating Income/Expenses
= Pre-Tax Income
- Taxes
= Net Income
Questions to ask yourself:
β’ Is the company already profitable?
β’ Does the company have a lot of costs of goods sold compared to its sales?
β’ How much of the sales are translated into profit (net income)?
β’ Is the company already profitable?
β’ Does the company have a lot of costs of goods sold compared to its sales?
β’ How much of the sales are translated into profit (net income)?
3οΈβ£ Cash Flow Statement
The Cash Flow Statement consists of 3 elements:
β’ Cash Flow from Operating Activities
β’ Cash Flow from Investing Activities
β’ Cash Flow from Financing Activities
It shows you the cash that enters and leaves a company.
The Cash Flow Statement consists of 3 elements:
β’ Cash Flow from Operating Activities
β’ Cash Flow from Investing Activities
β’ Cash Flow from Financing Activities
It shows you the cash that enters and leaves a company.
Cash Flow from Operating Activities
Net Income
+ Non-Cash Changes
+/- Changes in Working Capital
= Cash Flow from Operations
Net Income
+ Non-Cash Changes
+/- Changes in Working Capital
= Cash Flow from Operations
Cash Flow from Investing Activities
- Capital Expenditures
- Acquisitions
+ Proceeds from the sale of investments
= Cash Flow from Investments
- Capital Expenditures
- Acquisitions
+ Proceeds from the sale of investments
= Cash Flow from Investments
Cash Flow from Financing Activities
+/- Borrow/Repay Debt
+/- Issue/Repurchase of stocks
- Pay Dividends
= Cash Flow from Financing
+/- Borrow/Repay Debt
+/- Issue/Repurchase of stocks
- Pay Dividends
= Cash Flow from Financing
Questions to ask yourself:
β’ Are most earnings translated into operating cash flow?
β’ Does the company have a positive free cash flow (operating cash flow β CAPEX)?
β’ Did the company manage to increase its cash position compared to last year?
β’ Are most earnings translated into operating cash flow?
β’ Does the company have a positive free cash flow (operating cash flow β CAPEX)?
β’ Did the company manage to increase its cash position compared to last year?
That's it for today.
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Sign up here to receive it for free: bit.ly
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