The basics of financial analysis schwalbe10

Agenda Learn the basics of financial analysis Guess the company from financial statements

Learn the basics of financial analysis

“You have to understand accounting and you have to understand the nuances of accounting. It’s the language of business and it’s an imperfect language, but unless you are willing to put in the effort to learn accounting – how to read and interpret financial statements – you really shouldn’t select stocks yourself” Warren Buffett

A balance sheet shows stocks measured at specific time. A income statement and a show flow statement measured over an interval of time. 5 Income Statement (PL) Cash Flow Statement (CF) Balance Sheet (BS)

A balance sheet summarizes a company's assets, liabilities and shareholders' equity at a specific point in time. 6 Balance sheet (BS) Assets that are due within 1 year Cash, Accounts receivables, Inventory, etc. Assets that are not due within 1 year Property, plant & equipment, Intangible assets, etc. Debts that are due within 1 year Accounts payables, Short-term debts, etc. Debts that are not due within 1 year Long-term debts, etc. Net value of a company Capital stock, Retained earnings, etc.

An income statement reports a company's financial performance over a specific accounting period. 7 Income statement (PL) An exchange of money for goods or services Costs by the production of the goods sold Raw materials, Labor costs, etc. Expense in the normal business operations Selling general and administration, etc. Profit earned from business operations Profit earned from goods or services

A cash flow statement provides aggregate data regarding all cash inflows and outflows. 8 Cash flow statement (CF) Cash flow from core business operations Cash flow from assets and investments Cash flow from debts and equity This case is an example of a startup. There is a large outflow of operating and investing activities because they have a few sales and invest money to new business. On the other hand, financing activities increase when they raise capital.

There are 3 perspectives in financial analysis. You should consider all of them in order to extract valuable information. 9 Qualitative Analysis ● Understand a meaning of financial statements Quantitative Analysis Amount Ratio ● Grasp a scale of business ● Accumulate amounts for modeling ● Find out a condition of companies ● Set a baseline for comparison ● News ● Press Release ● Sales ● Cash Flow ● ROI ● Turnover Ratio Objective Source (e.g.)

Guess the company from financial statements (Quiz)

Guess which company discloses the annual financial statements. 11 1. The financial statements are the latest version of each company. (The fiscal year ended in Jun. 2017 or Dec./Sep. 2016.) 2. There are 8 companies listed in NASDAQ; Alphabet (Google), Amazon, Apple, Facebook, Microsoft, Paypal, Tesla, and Starbucks. 3. The amounts are not displayed because they provide a clue. All accounts are represented as the ratio of total assets. 4. You can see this quiz from the following QR code or URL. Preconditions URL: https://speakerdeck.com/schwalbe10/the-basics-of-financial-analysis

A revenue stream is useful information for analysis. These figures show the streams of the tech giants that are the candidates of this quiz. 12 Hint * How Apple, Amazon, Facebook, Microsoft, Alphabet Make Their Billions ? ? ? ? ?

Which company discloses the financial statements? 13 No. 1

Which company discloses the financial statements? 14 No. 2

Which company discloses the financial statements? 15 No. 3

Which company discloses the financial statements? 16 No. 4

Which company discloses the financial statements? 17 No. 5

Which company discloses the financial statements? 18 No. 6

Which company discloses the financial statements? 19 No. 7

Which company discloses the financial statements? 20 No. 8

Guess the company from financial statements (Answer)

Which company discloses the financial statements? 22 No. 1

Which company discloses the financial statements? 23 No. 1 ● The inventory turnover is high because they sell a large number of goods. ● They have many equipmens and stores (Finance Lease), so the ratio of noncurrent assets in the total assets is relatively high.

Which company discloses the financial statements? 24 No. 2

Which company discloses the financial statements? 25 No. 2 ● This is the only company that reported an operating loss. ● The ratio of noncurrent assets in the total assets is high because they need facilities to produce cars.

Which company discloses the financial statements? 26 No. 3

Which company discloses the financial statements? 27 No. 3 ● The shareholders’ equity ratio is quite high because they accumulate retained earnings. ● They have acquired hardware companies. As a result, the COGS is relatively high.

Which company discloses the financial statements? 28 No. 4

Which company discloses the financial statements? 29 No. 4 ● The COGS is zero because the revenue depends on the fee of transaction. ● They need to transfer money to the customers, so the rurrent ratio of current liabilities in the total liabilities is high.

Which company discloses the financial statements? 30 No. 5

Which company discloses the financial statements? 31 No. 5 ● The ratio of noncurrent assets in the total assets is high because they need facilities to produce iPhone, iPad, and Mac. ● The COGS includes costs related to manufacturing, and it is high.

Which company discloses the financial statements? 32 No. 6

Which company discloses the financial statements? 33 No. 6 ● The inventory turnover is high because they sell a large number of goods. ● It is a low-margin business, and the gross profit is not high.

Which company discloses the financial statements? 34 No. 7

Which company discloses the financial statements? 35 No. 7 ● The shareholders’ equity ratio is quite high because they accumulate retained earnings. ● The reason why the ratio of noncurrent assets in the total assets is relatively high is the goodwill that is a premium value of acquisition.

Which company discloses the financial statements? 36 No. 8

Which company discloses the financial statements? 37 No. 8 ● The product portfolio is diverse, and the statements are mixed in a wide variety of businesses. ● The COGS is relatively high because they embark on hardware businesses.

There are 3 perspectives in financial analysis. You should consider all of them in order to extract valuable information. 38 Qualitative Analysis ● Understand a meaning of financial statements Quantitative Analysis Amount Ratio ● Grasp a scale of business ● Accumulate amounts for modeling ● Find out a condition of companies ● Set a baseline for comparison ● News ● Press Release ● Sales ● Cash Flow ● ROI ● Turnover Ratio Objective Source (e.g.)