How to analyze companies
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
Balance Sheet:
The balance sheet consists of the following elements:
– Current assets
– Long-term assets
– Current liabilities
– Long-term liabilities
– Shareholders equity
The balance sheet is based on a simple formula:
Assets = Liabilities + Equities
A balance sheet shows you what a company owns and owes.
Income Statement:
An Income Statement shows you the revenues and expenses of a company.
It consists of the following elements:
Revenue
– COGS
= Gross Profit
– Operating Expenses
= Operating Income
– Non-Operating Income / Expenses
= Pre-Tax Income
– Income Tax
= Net Income
Cash Flow Statement:
A Cash Flow Statements shows you the cash that enters and leaves a company.
The Cash Flow Statements consists of 3 elements:
– Cash Flow from Operating Activities
– Cash Flow from Investing Activities
– Cash Flow from Financing Activities
Cash Flow from Operating Activities:
Net Income
+ Non-Cash Changes
+/- Changes in Working Capital
= Cash Flow from Operating Activities
Cash Flow from Investing Activities:
– Capital Expenditures
– Acquisitions
+ Proceeds from the Sale of Investments
= Cash Flow from Investing Activities
Cash Flow from Financing Activities:
+/- Borrowing/Repaying Debt
+/- Issuing/Repurchasing Stocks
– Dividends Paid
= Cash Flow from Financing Activities
