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How to analyze company reports. Part 3

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Annual Financial Report - Typewriter image

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 3.

And the last thing on this page is Total stockholders’ equity — “total share capital”. These are tangible assets of the company that are owned by shareholders. This is the guarantee that we can get in case of bankruptcy of the company.

A simple example: An asset costs $100. Total shares — 10.

The company’s capital is $500. Each share accounts for $50 of tangible assets (capital)

You bought 1 share for $100, and the company went bankrupt. You can expect to make $50, but in any case, it is a loss.

Well, let us briefly run through the last sheet, which we wanted to tell you about in this article — Consolidated statement of cash flows.

There are 3 main articles: 

  • Operating activities;
  • Investment activity;
  • Financial activity.

Net cash provided by operating activities — net cash from operating activities.

We have already described what this is, but here it is just a more detailed structuring.

This includes depreciation, accounts receivable, accounts payable, tax deductions, etc.

That is, a more detailed operating profit.

Net cash used for investing activities — net cash from investing activities.

Roughly speaking, this is how much the company spends on its development.

This includes: buying and selling assets, buying shares in equity investments, spending on research, buying tangible assets, etc.

Net cash provided by (used for) financing activities — net cash from financing activities.

This is the section on the financing of the company.

This includes: raising funds through loans, raising capital, paying dividends, etc.

These are the most basic concepts that you should pay attention to when evaluating companies.

At the same time, it should be taken into account that all these points need to be looked at in dynamics at least for several years to understand how and where the company is going.

Good luck with your investment!

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