Daniel

Daniel

13-11-2022

13:08

Every Investor MUST know how to analyze companies. A huge part of that, is analyzing the 3 financial statements. Here’s how to analyze and interpret the… - Balance Sheet - Income Statement - Cash Flow Statement

1. Balance Sheet The balance sheet tells you about the net worth and health of a company. What assets does the company own (Assets) and Where did the money for those assets come from (Liabilities)

1.1 What to look for? 1) Cash & Equivalents Position 2) Relation of Debt and Equity 3) Retained Earnings Position

1.2 What You want to see (Rule of Thumb): 1) Cash-to-Current Liabilities Ratio > 1 2) Debt-to-Equity Ratio > 2 3) Retained Earnings-to-Total Assets > 40%

2. Income Statement (Profit & Loss Statement) The income statement tells you about a company’s revenues and expenses. It makes sense to compare two or three consecutive P&Ls to look for trends.

2.1 What to look for? 1) Uptrends in Revenue and Earnings 2) Profit Margins 3) EPS Growth

2.2 What you want to see (Rule of Thumb): 1) Uptrends in Revenues and Earnings >15% 2) Profit Margins >20% 3) EPS Growth >15%

3. Cash Flow Statement The cash flow statements shows how cash moved in the business. It’s where you see if the company is generating or burning cash.

3.1 What to look for? 1) Net increase/decrease in cash 2) Operating Cash Flow relative to Capex 3) Is Debt issued or repaid?

3.2 What you want to see (Rule of Thumb)? 1) Net increase in cash 2) Operating Cash Flow > Capex 3) Debt get’s repaid regularly

I hope this Thread helped improving your basic understanding of the 3 Financial Statements. If so, please Like and Retweet this thread. To learn more about Investing, follow me @MnkeDaniel

On my Substack, I’ll post a more detailed version of this thread and the PDFs of the Balance Sheet, Income Statement, and Cash Flow Statement in the next couple of days.



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