Analyzing Financial Statements

This topic could be and is a full semester course at some business schools. It is a deep and rich topic that I can’t cover in one single blog post. But it is also a relatively narrow skill set at its most developed levels. If you are going to be a public equity analyst, you need to understand this stuff cold and this post will not get you there. But if you are an entrepreneur being handed financial statements from your bookkeeper or accountant or controller, then you need to be able to understand them and I’d like this post to help you do that. In the past three weeks, we talked about the three main financial statements, the Income Statement, the Balance Sheet, and the Cash Flow Statement. In general, I like to start with cash. Then look at how much cash the business had in a prior period. But that number can be misleading, particularly if you did any debt or equity financings during that period (or if you paid off any debt facilities during that period).

Record Keeping and the Accounting Process | Money Instructor Accounting is a process-oriented task that follows a prescribed series of steps in order to keep track of, and record, the balances of the various accounts. When a business makes a transaction, the effect of that transaction is recorded in the accounting system. According to the fundamental accounting equation, each transaction will affect at least two accounts and the balances in those accounts will change. Accounting is the process of keeping track of those changes and recording and then reporting them. The Accounting Process Transaction Example: On August 2, 2005 Tom’s Plumbing purchased a truck for $25,000 with a $5,000 cash deposit and a $20,000 bank loan. The asset account “Truck”The asset account “Cash”The liability account “Bank Loan” These specific accounts can be found in what is called the Chart of Accounts. Chart of AccountsThe Chart of Account is list of all the accounts used by an entity to record financial transactions. Tom’s PlumbingChart of Accounts The General Journal

How to Value a Stock with Benjamin Graham’s Formula How to value stocks series For other posts in the series, follow the links below. Quick Word on the Science and Art of Valuation Valuation is an art. Assumptions are needed to perform any type of analysis as the whole topic of stock valuation is forward looking. Throughout these valuation exercises, it’s important to understand that the final stock value will vary based on the assumption of scenarios. Instead of trying to pinpoint one number, the science behind valuing stocks is to come up with a range of values. Now, let’s see how Graham valued stocks. Using Benjamin Graham’s Formula to Value a Stock The Benjamin Graham Formula was Created by this man. The second method I use to value a stock is by using Benjamin Graham’s formula from The Intelligent Investor. With the extremely popular free Ben Graham stock spreadsheet I offer, the stock valuation method deserves a closer look. Benjamin Graham Formula The original formula from Security Analysis is (credit to wikipedia for the formula images)

This Week On Twitter: How Twitter Can Get You Hired, Social Media Marketing And Earthquake Tweets Need a little weekend reading? We’ve compiled our top ten Twitter stories of the week, which includes a look at the importance on Twitter in the job market, the latest social media marketing statistics, how Twitter beat traditional media to break news on the East Coast earthquake, record visits for Twitter in July and an example of Twitter marketing at its best. Here are our top 10 Twitter stories of the week: 1. 45% Of Companies Use Twitter To Find Talent [INFOGRAPHIC] If you’re out there looking for a job, one of the best ways to do this is through social media platforms such as Twitter and Facebook. 2. If you’re a social media marketer, you’ve got to love numbers. 3. So maybe us East-coasters are a little pampered when it comes to natural phenomenon (thunderstorms freak many of us out), but the vast majority of us felt that 5.8 magnitude earthquake that shook Virginia and fanned out along the coast this afternoon. 4. 5. 6. 7. 8. It’s very easy to get obsessed with numbers on Twitter.

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Practice Investing, Stock Market Game | UpDown.com Adam Smith, Wealth of Nations, Contents Introduction Chapter 1. Of the Division of Stock Chapter 2. Of Money considered as a particular branch of the general Society, or of the Expense of maintaining the National Capital Chapter 3. Chapter 4. Chapter 5. Introduction Chapter 1. Chapter 2. Chapter 3. Part 1. PART 2. CHAPTER 4. CHAPTER 5. CHAPTER VI Of Treaties of Commerce CHAPTER VII Of Colonies PART 1 Of the Motives for establishing new Colonies PART 2 Causes of Prosperity of New Colonies PART 3 Of the Advantages which Europe has derived from the Discovery of America, and from that of a Passage to the East Indies by the Cape of Good Hope CHAPTER VIII Conclusion of the Mercantile System CHAPTER IX Of the Agricultural Systems, or of those Systems of Political Economy which represent the Produce of Land as either the sole or the principal Source of the Revenue and Wealth every Country

Research and Valuation Process How to Invest in the Stock Market: Part 1 | Part 2 | Part 3 | Part 4 | Part 5 Here is the process I follow which is rooted in the Graham and Dodd approach: Search I usually scan for ideas reading print media such as the Wall Street Journal, Barrons, and websites such as Google Finance and blogs looking at 52-wk lows lists looking for headlines that just spell “bad news” and articles that may lead to ideas with catalysts, event driven ideas and sometimes macro-event driven ideas. I’ll use screens if I don’t find anything in the headlines. If I think I can profit off the situation, I’ll really do some due diligence. Analysis Financial Reports and Statements At this point, I would grab at least the last three years of annual reports, 10K/Q’s, 8-K’s, proxies, conference calls transcripts and sometimes trade journals or magazines for additional information not included in the public documents. Management Discussion & Analysis Lastly, I finish up the MD&A by looking for liquidity information. A. or

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