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Brian Feroldi Profile picture
@BrianFeroldi
Oct 25, 2023 • 10 tweets • 3 min read • Read on X
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If you buy individual stocks, you MUST understand accounting.

These 7 infographics will help you master balance sheet analysis:

1: Balance Sheet Overview Image
2: Balance Sheet Questions to Ask: Image
3: The 4 ways companies raise capital, and how they impact the balance sheet Image
4: Balance Sheet ratios to watch: Image
5: Balance Sheet Green Flags Image
Want to go deeper into accounting?

Join my upcoming cohort-based course, Advanced Financial Statements Analysis.

Details here:

Interested? DM me for a coupon code. maven.com/brian-feroldi/…
Image
6: How the balance sheet & income statement link: Image
7: Warren Buffett's Balance Sheet rules of thumb: Image
Enjoy this thread? Follow me @brianferoldi

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More from @BrianFeroldi

Brian Feroldi Profile picture
Aug 16, 2024
WACC Cheat Sheet

What is the Weighted Average Cost of Capital?

Here's a quick primer: Image
WACC is the average after-tax expense of capital for a company from all of its sources.

This includes common stock, preferred stock, bonds, and other hybrid debt & equity instruments.

WACC is the mean rate a company pays to fund its operations. Image
WACC = [(E/V) x Re] + [(D/V) x Rd x (1 - Tc)]

E = Market value of the firm’s equity
D = Market value of the firm’s debt
V = E + D
Re = Cost of equity
Rd = Cost of debt
Tc = Corporate tax rate

WACC is a sum of the weighting of each capital source Image
Read 6 tweets
Brian Feroldi Profile picture
Jul 3, 2024
If you pick stocks, you MUST learn how to analyze a cash flow statement.

Here's how to do it in less than 2 minutes: Image
The Cash Flow Statement shows how cash moves in and out of a company over a period of time.

Its purpose is to track cash movement through a business. Image
The Cash Flow Statement uses CASH accounting.

This method only records transactions when money goes in or out of an account.

This differs from ACCRUAL accounting, the accounting method used on the Income Statement and Balance Sheet. Image
Read 10 tweets
Brian Feroldi Profile picture
Jul 2, 2024
How to analyze a Balance Sheet in less than 2 minutes: Image
The balance sheet is one of the three major financial statements.

It shows a company’s:
▪️Assets: What it owns
▪️Liabilities: What it owes
▪️Shareholders Equity: It's net worth

At a fixed point in time Balance Sheet
That “at a point in time” part is key!

A balance sheet is a SNAPSHOT of a company’s net worth.

It is measured at the end of a quarter/year. Image
Read 11 tweets
Brian Feroldi Profile picture
Jun 21, 2024
Warren Buffett's favorite way to measure profit isn't Net Income or Free Cash Flow.

It's Owner's Earnings.

What is it? How to does it work?

In this thread, I'll walk you through the calculation: Image
Imagine that you're opening a coffee shop.

You spend $100k on furniture & fixtures that will last 10 years.
You spend $60k on coffee equipment that will last 3 years.

Here are your total annual operating costs: Image
You make $1 million in revenue, so here's your income statement:

Revenue: $1,000k
Expenses: $450k
Pre-tax income: $550k
Taxes: $110k
Net Income: $440K

If you started with $105K in cash, how much do you have now?
Read 11 tweets
Brian Feroldi Profile picture
Jun 17, 2024
If you invest, you MUST understand accounting.

This thread will walk you through the Income Statements, visually: Image
An Income Statement is a *record* of how much money a business made (or lost) during a particular period of time -- eg, a quarter or a year.

The formula is: Revenues - Costs = Profits

Here's an example using Starbucks's income statement: Image
The Income Statements also contain a few other numbers that interest investors, including:

Gross Profits, Gross Margin, EBITDA, Operating Profits, Operating Margin, Earnings Per Share, etc. Image
Read 12 tweets
Brian Feroldi Profile picture
May 31, 2024
Tangible vs Intangible Assets.

What's the difference?

Here's everything you need to know: Image
They confused me until I discovered an easy way to distinguish them:

𝗧𝗮𝗻𝗴𝗶𝗯𝗹𝗲 𝗔𝘀𝘀𝗲𝘁𝘀 𝗖𝗮𝗻 𝗕𝗲 𝗧𝗼𝘂𝗰𝗵𝗲𝗱

𝗜𝗻𝘁𝗮𝗻𝗴𝗶𝗯𝗹𝗲 𝗔𝘀𝘀𝗲𝘁𝘀 𝗖𝗮𝗻'𝘁 Image
Another major difference.

- Tangible assets are depreciated

- Intangible assets are amortized Image
Read 7 tweets

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