How to Read Company Financial Statements (Basics Explained)

 

An important part of analyzing a company for a potential investment is understanding their past, current and potential future financial situation. In this video, we all go through the basics of a financial statement and explain the key sections. We'll be looking at the latest quarterly results from Tesla and analyzing how the company's being run.

 

The financial statements for companies are usually made up of three main statements. We have the balance sheet, the income statement and the cash flow statement. The 10k and 10-q filings which are mandatory for all publicly traded companies in the US by the SEC will provide more information about the company and it will be audited so the information will be more dependable and more accurate. For us, listed companies like Tesla, the financial statements would be included in the 10k.

 

The balance sheet is typically the first statement to appear and gives a snapshot of the company's assets, liabilities and shareholders' equity at a specific point in time. Tesla's balance sheet includes things such as cash cash equivalents, money owed by customers' inventory and goods and services that have been paid for but not yet used. Non-current assets are assets that are not expected to be sold or used within the next year. The last section is equity, which is often referred to as shareholders' equity or shareholders' funds and is what shareholders would get if all assets were liquidated and all liabilities were paid off. Tesla lists its assets in order of how liquid they are, which means how easily they can be changed or converted into cash.

 

The company's liabilities include things like money owed to suppliers, even money that has been paid but the good or service is yet to be delivered. The income statement is going to show us the earnings and expenses of a company over a specific period of time. Looking at gross profit operating income or loss income or lost before taxes. A cash flow statement shows how much cash is on hand for a company to make necessary payments. Shows the amount of cash or-equivalents coming into the company or leaving the company. It shows how much money the company has on hand to make necessary debt payments and fund its operations.

 

The cash flow statement is usually split into three main sections: cash from operations, cash from investing activities and cash from financing activities. It gives information about a company's liquidity and solvency. If the company runs out of cash, it could be insolvent, which is one of the main reasons for businesses failing. There are three main statements that make up a company's financial statements: the balance sheet, the income statement and the cash flow statement. By understanding these main sections, you can already get a good grasp of what's going on in the company. I'd recommend downloading the financial statements of companies from different industries to see how they differ from one another. If you like this video and want to see more on this topic, then hit that thumbs up button and let us know by sending us a thumbs up. Thanks so much for watching our video series and, as always, don't forget to subscribe to the channel for more videos.

 

Financial statements are accounting reports that summarize a business's activities over a period of time. James: How do they work exactly? It all boils down to one basic principle: The stuff a business owns is equal to the stuff that a business owes The income statement is a summary of what a company owes and what it owes on December 31st. The balance sheet is for a business called Cache Me If You Can which makes microchips and computer stuff The Income Statement is for the company's quarterly earnings. It gives a snapshot of a company's assets, liabilities and equity.

 

Profit is the financial benefit that a business gains when its revenues are bigger than its expenses. A business's accumulated profits held for future use is called its retained earnings. Capital contributions are made up of capital contributions that the owners have put into the business and $1,242,000 in retained earnings. Cash is the difference between revenues and expenses minus current year withdrawals the profit distributions to the owners or shareholders of the business.

 

Balance Sheet shows what the business owes on December 31st and what it owes on January 1st. The income statement summarizes a company's revenues and expenses over time.The balance sheet tracks Cache Me If You Can'sperformance over a one year period and tells us how profitable they are. The income statement and the balance sheet link together two of the most important financial statements.

 

There are arguably three ways to decide whether or not to buy a property. Bottom-up bricks-and-mortar approach, house next door approach and the value from a rental perspective approach. You could sort of do a calculation of all the future rent that the asset might generate and then bring it back into today's money terms using a technique I've covered in another video called discounting. The idea is to establish a range against a range to get the negotiation going and then, obviously, sellers look to achieve the top end of the range and buyers look to achieve the bottom end of a range and how it works.

 

The value of a company can be valued using a sort of similar three-pronged approach if you like. The asset based approach is when you look at a company's balance sheet as a starting point. The house next door approach is known as or, well, I'll call it ratio-based, and if there is enough demand, we can cover the East. In essence, ratio base is saying, "Let's look at something like their p/e ratio or their price to sales ratio."The longer-term view is to look at what you can squeeze out of a company and not just wind it up and flog off the assets. Junkies: There are several ways to value a company, and the presence of a predator, obviously, is critical. So you don't overpay for it as an investor is quite important too. So we want to introduce their ideas.

 

All I've done here is that there are several methods you can use to value companies. The three methods are asset based bottom up, ratio based approach and discounted cash flow. The third and biggest and biggest method is what's called discounted cash Flow DCF. The idea is to forecast the earnings and cash flows that the company will generate looking into the future and then bring them back to today's money using a discount rate. The fourth and biggest approach is to look at similar companies and multiply them to get the price that can be done using the p/e ratio. DCF is the most difficult because it requires the most work in projecting cash flows into the future and discounting them back to get a price or value today.The three techniques just generated hope that they will be useful. See you in the next video.

 

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