Financial statement analysis is the one go-to analysis you should do before investing in any company.
It is used by shareholders as well as stakeholders to evaluate the business for better decision-making to understand the overall health of the company.
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It is the process of analysing and assessing:
1⃣Profit & Loss
2⃣Balance Sheet
3⃣Cash Flow Statement of the company.
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• Profit & Loss Statements
P&L gives a good picture of the Profitability of a company.
P&L statement showcase all the expenses incurred and revenue generated during a financial year.
Thus, the statement is divided into two sections, namely
👉INCOME
👉EXPENSES.
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• Balance Sheet
After preparing the profit & loss statement, you move forward to the Balance Sheet, which shows the company's financial position in a given financial year.
It is divided into segments, namely,
👉Shareholder funds
👉Assets
👉Liabilities.
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The inflow and outflow of cash are clearly depicted in the Cash Flow Statement.
The cash flow statement is divided into 3 sections:
1⃣Cash flow from Operating Activities
2⃣Cash flow from Investing Activities
3⃣Cash flow from Financing Activities
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Find detailed information about analysing companies' financial statements before investing in them on:
• Equity Risk
• Credit Hazard
• Risk of Interest Rates
• Risk of Inflation
Let's discuss them in detail. ⤵
1️⃣Equity Risk
The money you put into an equity investment is eventually invested in the equities of publicly traded firms. Thus, equity SIP investment plan mutual funds, or any fund having a portion of its assets invested in stocks, are exposed to the hazards of stock markets.
2️⃣Credit Hazard
When a borrower or issuer takes out a loan, they commit to returning the principal and interest on the agreed-upon time. The absence of this creates a credit hazard.
PPF is one of the most popular investment cum saving schemes opted in India. It is a type of provident fund which is availed by self-employed individuals. PPF is a saving fund with many tax-saving benefits along with many promising returns.
When a PPF scheme is opened, the money gets deposited into the account every month & interest is compounding. This account can be ideal for people who have a low-risk appetite.
Born in Prayagraj, Alakh used to be good at studies since his childhood and wanted to go to IIT, but his poor financial condition didn’t allow him to do so.
Alakh, started teaching when he was in 8th standard, and he enjoyed it.
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Then he started teaching full-time, and in 2014.
That’s when he started teaching on YouTube.
He started teaching the students of class 10th who were from the ICSE Board. #business
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When we invest in a company we hope that the management is going to use that money for the growth of the company.
But, don't you think giving dividends is like returning the investors' money, which indirectly shows that the company is unable to manage the invested money efficiently.
Would it be justified if we value these loss-making companies with the traditional method?
NO!❌
So, let's understand how can we value them 🧵⤵️
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Digital First Companies:
These companies first aim at increasing their customer base👥 & their retention & later comes the question of profit.💰
Let's see how we can analyze these companies:
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1. Focusing on the right metric can help
Amazon was in losses for the first 20 years, evaluating it in terms of its profits would've made the company seems valueless. Rather, we valued it in terms of how much market the company is capturing & the value that it is creating.
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