Reading Financial Statements

[blakfyahking]

there are 3 main financial statements you want to understand when looking at any company:

the income statement

the balance sheet

the statement of cash flows

for the amateur business head all you need to understand is:

the income statement - shows revenues and expenses (money you made and bills you had to pay)

the balance sheet - shows all of assets of the company and who owns the assets (whether the assets are borrowed from creditors or straight owned by shareholders)

the statement of cash flows - shows the change in cash during the reporting period (shows how much the cash the company actually gained and lost)

 

[blakfyahking]

the one most new investors should start with is by reading the income statement because it shows profits (and losses)

you can find financial statements for any public company on their investor relations website or at the SEC.gov website by looking at a form called a "10K"

Every income statement is organized basically as follows:

Sales Revenue

- Cost of Goods (Inventory)

= Gross Profit

- Selling, General, and Admin Costs (Overhead costs)

= Operating Profit

- Depreciation, Taxes, Interest, Etc.

= Net Profit

the 3 bolded terms are the "profit" that all businesses trying to make...........generally these 3 types of profit are expressed as "profit margins"

Net profit is what you get after all bills are paid generally.........on company financial statements this is a total amount divided by the number of shares

 

[blakfyahking]

when analyzing financial statements you will see people argue over how much actual profit a company has based on evaluating the 3 types of profit (gross, operating, and net)

the profit mostly scrutinized by investors is the operating profit or EBIT or EBITDA............this is because companies cannot easily hide their true profits thru accounting tricks

so sometimes operating profit is even more valuable to know than net profit

many people miscalculate EBIT or EBITDA as shown in this good thread about Papa John's from a little while back haha:
http://community.allhiphop.com/disc...ys-hes-cutting-job-hours-because-obama-won/p8

it was a good example of how difficult it is to analyze financial statements

 

[buttuh_b]

They ain't gon hear you though.

 

[OhMars]

Yeah you damn near have to have a some kind of business degree to get it.

 

[gotrealincomeproof]

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[killap]

Good stuff... Idk I don't view this stuff as complicated but it is also my career so it may be a bit more difficult for others to catch on