Balance Sheet

The balance sheet compares the assets of the company against the sources of those assets. Sources include borrowing money to earning the money. Learn about the different classes of assets, liabilities, and the owner’s equity. Included with this are balance sheet ratios and proper analysis of balance sheet accounts.

Value Investing – Financial Statements (Lesson 10)

To comprehend financial information, first the member must understand their general purpose and how they are prepared. The first section of this lesson introduces financial statements and their two primary purposes. In addition, pertinent issues are introduced that a company must endure to finally present a well prepared set of reports. Next, each of the five major types of financial statements are introduced. Most companies present a core set of five that include a 1) balance sheet, 2) income statement, 3) cash flows statement, 4) statement of retained earnings, and 5) a set of notes to clarify the four other statements. Some go further and present industry and highly customized financial reports. These are covered in Phase Two of this program along with the Pool’s information center that members have access to on this website. Finally, this lesson covers the importance of a few key bits of information and how these critical financial values impact the respective buy/sell models value investors develop.

Many stock market investors are not familiar with financial reports; they rely on accountants to provide the results in laymen’s terms in order to make decisions. This program is designed to build the confidence of non-accountant types to not only understand financial reports but to appreciate and ultimately, eagerly await their arrival each quarter. Again, Phase Two of this program goes in-depth about financial statements and how to interpret the information.

This lesson utilizes the financial reports as presented for the year 2019 from the Coca-Cola company. Coke is a DOW company and is considered one of the best stocks to own if you can purchase the stock at a good price. Coke is a dividend based purchase and often buyers purchase Coca-Cola stock to hold and receive dividends.

Bookkeeping – Proper Balance Sheet Presentation (Lesson 20)

Balance Sheet Presentation

The balance sheet serves as an historical report. It identifies the accumulated change in value since inception. The balance sheet is organized into two halves and both sides must be equal in value. In addition, the balance sheet is a snapshot of the financial condition at a single moment in time along the lifetime timeline of the company.

Bookkeeping – Debits and Credits in Equity Accounts (Lesson 10)

Equity Accounts

The equity section of the balance sheet identifies the approximate dollar value of net worth accrued to the owners/investors. Equity type accounts can have both credit and debit balances. By far the most preferred is a credit value. Debit values does not mean that something is wrong, actually it can be a great sign of a good operation.

Leverage in Business

Financial Leverage

In the simple lever and fulcrum machine the force is magnified onto a load. The machine creates a mechanical advantage, a form of force amplification. In business the principle is exactly the same. Except here we are not moving a physical object but the objective is to amplify the profitability or financial gain by using some form of a lever and applying this lever to a fulcrum and generating financial advantage.

Internal Controls – Fixed Assets

Internal Controls - Fixed Assets

Internal control is a subset of the accounting system to aid in proper reporting of existing assets and liabilities. Internal controls over fixed assets alleviate two distinct risks. The primary risk is physical in nature and relates to the asset getting lost, stolen or damaged thereby affecting the value as reported on the financial statements. The second risk is financial in nature related to errors in determining cost basis, useful life, and depreciation assigned; all of which can affect value.

Each risk uses a separate set of controls to minimize or eliminate the exposure and reduce management’s concern that the financial value as reported is incorrect.  This article explains the standard set of controls for each risk group.

Financial Statements for the Small Business

Financial Statements

Financial statements serve the purpose of presenting economic activity and status related to a particular date and over a particular time frame. Accountants record monetary transactions and via financial reports present the information in an easy to understand format. The financial statements for a small business do not have to comply with those of publicly traded operations.