Thanks for the messages and comments in Facebook! Below is part 3 of the Learning Series: Profit from Red Flags. In this part, we will complete the Income statement and Statement of Cash flow
Link for the earlier post: https://www.investwhizz.com/2018/07/21/learning-series-profit-from-red-flags-2/
Income Statement checklist:
Checkbox | Red Flag Pointers | |
Revenue | Abnormal fluctuations | |
Cost of Sales | Abnormal fluctuations | |
Gross Profit | Thin margins | |
Other income (Interest/Dividend/Non-operating income) | Exceptionally high one off item | |
Other operating expenses | ||
Marketing and distribution | ||
Research and Development | R&D a lot more than Sales | |
Administrative expenses | High restructuring | |
Finance costs | ||
Other expenses | Goodwill/Expense written off | |
Profit before tax | ||
Income tax expense | ||
Profit for the year from continuing operations | ||
Loss for the year from discontinued operations |
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PROFIT FOR THE YEAR | ||
Attributable to: | ||
Owners of the company | Only this belong to Shareholders | |
Non-controlling Interest | Large % vs Total Profit | |
Earnings per share: | ||
Basic | ||
Diluted |
Other Comprehensive Income
Profit for the year | ||
Other comprehensive income: | ||
Exchange differences on translating foreign operations | ||
Net fair value changes of available-for-sale financial assets | ||
Net surplus on revaluation of freehold land/building | ||
Other comprehensive income, net of tax | ||
Attributable to: | ||
Owners of the company | ||
Non-controlling Interest |
Four
Cash flow Statement
(Statement of Cash flow)
_________
The cash flow statement shows how much cash comes in and goes out of the company over the period or the year. Cash flow statement is different from income statement as it measures the real exchange of cash & cash equivalents and it is usually harder to manipulate.
Although cash flow statement is more complicated, many investors feel that it is the most transparent financial statements and tend to place more reliance on it.
Cash flow statement checklist:
Cash flows from operating activities | Checkbox | Red Flag Pointers |
Net income | ||
Adjustments for: | ||
Depreciation and amortization | ||
Provision for losses on accounts receivable | ||
Gain on sale of facility | ||
Increase in trade receivables | ||
Decrease in inventories | ||
Decrease in trade payables | ||
Cash generated from operations | Negative operating cash flow | |
Cash flows from investing activities | ||
Purchase of property, plant, and equipment | Huge purchases which are not sustainable | |
Proceeds from sale of equipment | ||
Net cash used in investing activities | ||
Cash flows from financing activities | ||
Proceeds from issue of common stock | Too frequent raising of money | |
Proceeds from issuance of long-term debt | High gearing resulting in high interest | |
Dividends paid | Dividend > Operating cash flow | |
Net cash used in financing activities | ||
Net increase in cash and cash equivalents | ||
Cash and cash equivalents at beginning of period | ||
Cash and cash equivalents at end of period |
I have now completed the basic topics, we are now ready to get into a deeper level of understanding in the next post.
(P.s. I would be motivated to share more once the number of “like” is reached :). Do share the post if you think it can benefit people around you!
Targeted likes: 150!
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