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: 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.

How to analyze a Balance Sheet in less than 2 minutes: 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

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: 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:

If you invest, you MUST understand accounting.

This thread will walk you through the Income Statements, visually: 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:

Tangible vs Intangible Assets.

What's the difference?

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

𝗧𝗮𝗻𝗴𝗶𝗯𝗹𝗲 𝗔𝘀𝘀𝗲𝘁𝘀 𝗖𝗮𝗻 𝗕𝗲 𝗧𝗼𝘂𝗰𝗵𝗲𝗱

𝗜𝗻𝘁𝗮𝗻𝗴𝗶𝗯𝗹𝗲 𝗔𝘀𝘀𝗲𝘁𝘀 𝗖𝗮𝗻'𝘁

WACC Cheat Sheet

What is the Weighted Average Cost of Capital?

Here's a quick primer: 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.

The P&L Statement, Visualized.

If you're in business, you MUST understand how a Profit & Loss Statement works.

Here's everything you need to know: The P&L (or Income Statement) shows a company's profitability at multiple levels over a period of time using accrual accounting.

Its purpose is to track a company's revenue, expenses, and profits.

Here is a "typical" layout and what each term means:

Jeff Bezos told investors to IGNORE earnings.

Why? He believes it has 3 huge flaws.

Here's a quick primer on why he trained investors to focus on free cash flow instead: Flaw #1: Depreciation

Accounting rules dictate that equipment must be expensed over a number of years via depreciation.

The problem is this does NOT match the cash outflow when Amazon buys equipment.

Charlie Munger called it "bullsh*t earnings."

What is EBITDA? Why is it so popular?

Here's everything you need to know about this controversial accounting term: EBITDA is an acronym.

You start with Earnings, then you add back Interest, Taxes, Depreciation, and Amortization.

It's an alternative way of measuring profits.

Financial Statements For Beginners

Want to learn accounting?

Study these 9 simple infographics (a visual thread) ↓

How does Warren Buffett find undervalued stocks?

By following this SIMPLE process.

Here's a step-by-step guide every investor can copy: Buffett laid out his criteria in his 1978 shareholder letter:

1) A business that we UNDERSTAND
2) With favorable LONG TERM PROSPECTS
3) Operated by COMPETENT people
4) Available at an ATTRACTIVE PRICE

I've been investing for 20 years.

Here are 10 expensive lessons I had to learn the hard way: 1: You don't need leverage

Margin & options are fun on the way up but BRUTAL on the way down.

I’ve lost more than 100% on investments before. Why? Leverage!

Margin of Safety is an INCREDIBLE investing book.

But a used copy costs $1,200!

Here are 20 short lessons from this classic book (for free): 1: Markets are volatile. Never invest unless you are sure a "margin of safety" exists.

2: Focus on the intrinsic value of an investment. Only act when there's a meaningful difference between value and price.

Peter Lynch popularized the PEG ratio.

However, the PEG ratio can be incredibly deceiving.

Here’s everything wrong with it (and what to do instead): Assume you’re considering investing in one of three companies.

Which is the better buy?

How to analyze a Balance Sheet in less than 2 minutes: 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

Every investor MUST understand how a Profit & Loss Statement works.

Here's a useful visual: The P&L shows a company's profitability at multiple levels over a period of time using accrual accounting.

P&L has many different names, including:

→Income Statement
→Revenue Statement
→Earnings Statement
→Operating Statement
→Statement of Earnings

Tom Engle has lived off of his portfolio for 40 years (!!!)

How? He's an incredible investor with a BRILLIANT cash management strategy.

Here's EXACTLY how it works (step by step): Let's say Tom's portfolio is worth $100,000 in the middle of a bull market.

Tom is happy with this number and wants to protect it.

He mentally calls this $100,000 his "protected value."

All his cash management decisions are based on this number.

I’ve bought dozens of bad stocks that lost me money.

Here are 8 unforgettable failures (and the painful lesson that I learned): 1/ Remember when Warren Buffett bet big on $IBM? I did too.

I set up a bullish options position on $IBM because it was:

✅An iconic brand
✅Had Buffett’s approval
✅Cheap!

The most powerful investing lessons I've ever learned are counter-intuitive.

That’s logical - if they were intuitive, I would do them naturally.

Here are 7 counter-intuitive investing lessons I had to learn the hard way: 1: Don’t haggle over pennies

My instinct is to pay the lowest price possible when I buy.

If a stock is trading at $21, I used to set a limit order for $20.50, trying to squeeze out every last penny of value.

The P/E ratio SUCKS.

It’s an overrated metric that deceives investors.

Here are 8 reasons why the P/E ratio can be INCREDIBLY misleading (and what to do instead): The P/E ratio sucks because of many ways that “earnings” can be misleading.

The P/E ratio becomes useless if “earnings” aren’t sustainable or artificially inflated/depressed.

Here are 8 reasons why that can happen:

I’ve been investing for 20 years.

Here are the 9 best FREE investing resources I’ve ever found: 1: @finchat_io

What: The most intuitive free website I’ve ever seen for tracking business fundamentals.

Enables quick visual charting of dozens of metrics.