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How to analyze company reports. Part 2

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In this article, we would like to pay attention to such an important topic as analyzing company reports. What is revenue? Net income? And equity investments? You will find answers to these questions below. Part 2.

Let us go to the next section — Consolidated balance sheets. This is a balance sheet.

The basic concepts here:

  1. Assets – the company’s assets.
  2. Liabilities – the obligations of the company.
  3. Equity – the company’s capital.

Let us take it in order.

Assets are the company’s total assets. There are 2 types — liabilities and capital. An asset is something that generates income. And debt can also be an asset if taken for business development. This is why it is called a commitment. And capital is tangible assets (factories, areas, etc.).

We can see another line of Total current assets. These are short-term assets that can be used or sold within one year. They include:

  • Cash and cash equivalents;
  • Short-term investments;
  • Trading assets;
  • Accounts receivable, net of allowance for doubtful accounts;
  • Reserves;
  • Etc.

Different companies have different articles in this section, but the bottom line is that these are short—term assets and the most important indicator for us is cash. This item shows how much money the company has in reserve.

Next in order are long-term assets with sales of more than 1 year.

Plants, factories, and equipment are the company’s fixed assets.

Equity investments – investments in equity capital and other tangible and intangible long-term assets.

What is goodwill?

This concept is often found in large companies. In fact, it means “business reputation”.

This is an intangible asset that speaks to the value of the brand. That the company has a solid customer base and its technologies.

So, let us go on.

The Liabilities, temporary capital, and shareholders’ equity graph comes next.

Let’s focus on the most basic.

  • Total current liabilities
  • Long term liabilities

But you need to understand that obligations are not necessarily debts!

There is a graph:

Deferred income taxes. This is like an obligation, but not a duty in the literal sense.

Or Income taxes payable – income taxes. These are not borrowed funds. The company pays this article exclusively from what it has earned.

Because debt is something that a company is obligated to service.

In corporative activities, the company has the right to use the money earned before paying taxes for its own needs. Thereby reducing the tax base.

But the loan taken out will remain a loan that needs to be serviced.

Also, this column may indicate dividends as liabilities, but they are not a debt.

And the company’s net debt is precisely borrowed funds and loans.

They should be considered separately according to the following concepts:

  1. Short-term debt — short-term debt.
  • Debt — debt from the “long-term obligations” column.

It is these concepts that tell us about the company’s debts, loans, etc.

But it should be borne in mind that there is still a stock of cash and securities that can be quickly sold:

  • Cash and cash equivalents;
  • Short-term investments;
  • Trading assets;

Again, different companies have different debt items, sometimes:

  • Long-term debt;
  • Short-term debt;
  • Current portion of long-term debt;
  • Loans;
  • Loans and promissory notes payable;
  • Convertible senior notes;
  • Operating lease obligations.

This brings the first part of our article to the end. Read the following in chapter 3.

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