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The ONE thing stopping you from becoming a successful investor...
Is that you can't read and understand financial statements
I'll show you how to fix that
// THREAD //
Is that you can't read and understand financial statements
I'll show you how to fix that
// THREAD //
Why do people neglect financial statements?
Because they're BORING
I'm not going to bullsh*t you
They suck
If you love doing it, you're a million steps ahead of everyone else
Congrats to you
Because they're BORING
I'm not going to bullsh*t you
They suck
If you love doing it, you're a million steps ahead of everyone else
Congrats to you
I'm hoping this thread doesn't take you back to your accounting days in college
But I do believe that everyone should take at least one basic accounting class in their lifetime
It helps a lot with investing
Because financial statements are packed with important information
But I do believe that everyone should take at least one basic accounting class in their lifetime
It helps a lot with investing
Because financial statements are packed with important information
But some of it is also kind of useless
This thread is going to show you what to focus on so you can trim the fat
Ready?
Here we go
This thread is going to show you what to focus on so you can trim the fat
Ready?
Here we go
There are 4 types of financial statements
1) Balance sheet
2) Income statement
3) Cash flows statement
4) Statement of owners equity
We're going to be focusing on #3 --> the Cash Flows Statement
1) Balance sheet
2) Income statement
3) Cash flows statement
4) Statement of owners equity
We're going to be focusing on #3 --> the Cash Flows Statement
Why the Cash Flows Statement?
Because I believe it gives you the best overview of a company and the efficiency of its operations
I think many other investors would agree
No wonder it's the first Pillar of my course
So what exactly is the Cash Flows Statement?
Because I believe it gives you the best overview of a company and the efficiency of its operations
I think many other investors would agree
No wonder it's the first Pillar of my course
So what exactly is the Cash Flows Statement?
It measures how effectively a company manages its own cash position
This means it tells you how well they are able to generate cash flows in order to pay off debt obligations
I'm willing to bet many of you don't even look at this when you're investing
That will change soon
This means it tells you how well they are able to generate cash flows in order to pay off debt obligations
I'm willing to bet many of you don't even look at this when you're investing
That will change soon
It also gives you an idea of how they fund any operating expenses like:
- Payroll
- Rent
- Repairs
- Taxes
In 5th grader language...
It tells you where the company’s money is coming from and how it’s being spent
- Payroll
- Rent
- Repairs
- Taxes
In 5th grader language...
It tells you where the company’s money is coming from and how it’s being spent
With the pandemic, I'm sure you've seen some companies have troubles with their cash positions
This is the result of not having enough cash on hand to run operations, pay labor expenses and ultimately keep their businesses alive
This is the result of not having enough cash on hand to run operations, pay labor expenses and ultimately keep their businesses alive
Cash Flows Statement analysis is a good way to determine the financial strength of the company
And in my opinion, it should be one of the FIRST steps of your analysis
There are 3 different parts of the Cash Flows Statement
Let's take a look shall we?
And in my opinion, it should be one of the FIRST steps of your analysis
There are 3 different parts of the Cash Flows Statement
Let's take a look shall we?
1) Cash Flow From Operations (CFO)
By far the most important indicator of the efficiency of cash generation
It reflects the cash that the company generates internally and represents the companies operating profit
(IMPORTANT)
By far the most important indicator of the efficiency of cash generation
It reflects the cash that the company generates internally and represents the companies operating profit
(IMPORTANT)
If you see a negative number in this portion of the Cash Flows Statement...
Run
And keep running
It means their business operations are losing money
We don't want that sh*t in our portfolio's
Run
And keep running
It means their business operations are losing money
We don't want that sh*t in our portfolio's
2) Cash Flow From Investing (CFI)
This amount includes anything that involves the purchase or sale of long-term assets such as property, plant and equipment
It includes money that has been spent to:
- Grow
- Maintain assets
- Acquire other companies
- Invest in the market
This amount includes anything that involves the purchase or sale of long-term assets such as property, plant and equipment
It includes money that has been spent to:
- Grow
- Maintain assets
- Acquire other companies
- Invest in the market
A negative number is NOT a red flag
Sometimes this just means that the company is investing a significant amount of cash towards long term investments
This could be a good sign of potential future growth so don't you worry
Bou't a thing
(VERY IMPORTANT)
Sometimes this just means that the company is investing a significant amount of cash towards long term investments
This could be a good sign of potential future growth so don't you worry
Bou't a thing
(VERY IMPORTANT)
3) Cash Flow From Financing (CFF)
This is where you will find the amount of money the company has raised through share or bond issuances and other forms of debt
If the company took out a loan, you'd see it here as a positive number
This is where you will find the amount of money the company has raised through share or bond issuances and other forms of debt
If the company took out a loan, you'd see it here as a positive number
Positive cash flow from financing means that the business is raising money, which is a good sign
A negative number means that the business is paying money out either in the form of share buybacks/dividends/interest payments etc.
(EXTREMELY IMPORTANT)
A negative number means that the business is paying money out either in the form of share buybacks/dividends/interest payments etc.
(EXTREMELY IMPORTANT)
Financial statements may be boring but you should be able to read them
This small difference will separate a GOOD investor from a GREAT one
The ratios will give you the clues
The financials will give you the answers
This small difference will separate a GOOD investor from a GREAT one
The ratios will give you the clues
The financials will give you the answers
If you want to learn more I suggest you check out The Accelerator Pack
I go much more in-depth about what makes a great business & how to identify it with one quick glance
Every purchase comes with a 100% free portfolio review or strategy session https://bit.ly/DividendCashFlow
I go much more in-depth about what makes a great business & how to identify it with one quick glance
Every purchase comes with a 100% free portfolio review or strategy session https://bit.ly/DividendCashFlow
