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Earnings 101: Discover How to Invest during Earnings Season
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ZS19 joined discussion · Jul 29, 2021 20:59

Quick Guides on Financial Reports

Earnings season is all about financial reports, and I believe most of us here, are not trained properly or professionally to study about financial reports. For myself, a person with science background, my head start to feel dizzy when I look at those figures and financial terms
Quick Guides on Financial Reports

Luckily, I’ve met two persons, Mr. Fong Siling and Mr. Harry Teo, which helped me on this and now, financial reports are not a stranger to me anymore. I would strongly recommend the series of book written by Mr. Fong Siling (Cold Eyes 冷眼) to all the newbies while for Mr. Harry Teo, his facebook live and contents are easy to follow and I had learnt a lot from both of them.

Alright, as mentioned earlier, currently is the earnings season where most of the companies will release their previous quarter reports to update about their business status. The formats for most of the quarter reports are similar, mainly comprised by Income Statement, Balance Sheet & Cashflow Statement. Some of the reports used different names for these statements but basically they are the same. Below I use $Apple (AAPL.US)$ latest quarter report as example.

(Guys, don’t be too particular with the figures ? We can just use a simple brief to understand whether the business is Earning money or Losing money)

1. Income Statement (three months ended 26th June 2021, from April 2021 to June 2021)
-Net sales: All Revenue or Income from selling Apple’s products & services.(Yoy 81m vs. 60m)
-Cost of sales: Expenses from producing goods & services, for e.g. Cost of direct labors, cost of raw materials etc.(Yoy 46m vs. 37m)
-Operating expenses: Expenses for operating like R&D, admin, general fee etc.(Yoy 11m vs. 9.5m)
-Operating income: Income for operating activities = Net Sales - Cost of Sales - Operating Expenses
-Other income: Income from other sources except from selling products & services, maybe like rental or interest from FD.(Yoy 0.24m vs. 0.046m)
-Net Income: Net profit.The layman formula is (what you earned - what you spent)
So for here, Net Income (21.7m) = Net Sales (81m) - Cost of Sales (46m) - Operating Expenses (11m) + Other Income (0.24m) - Taxes (2.6m)
-EPS: Earning per share. Formula, Net income/Total share issued. For here, 1 share of Apple earned $1.30 for the past 3 months.
Quick Guides on Financial Reports
There is surplus of 21.7m net income higher than 11.2m from 2020 Q2, which mean the business is earning money and it earned more than last year same period!!! Hooray!!!

2. Balance Sheet
Normally for balance sheet we will see two things, Assets and Liabilities.In layman term, assets are anything that put money into your pocket while liabilities are anything that took out money from your pocket.
There are 2 types of assets/liabilities, which are current (within 12 months) and Non-current (more than 12 months). Now let’s see what are those:
-Current assets: Assets that can be convert to cash within 12 months. For e.g., Cash in banks, marketable securities (shares), inventories (stocks available in warehouse as they are also money) etc.
-Non-current assets: Assets that can be convert to cash after/more than 12 months. For e.g., long term shares, properties, plants, equipment, lands that can’t be sell immediately but they also worth money.
Quick Guides on Financial Reports
-Current liabilities: Anything that need to pay within 12 months. For e.g., rental, payment to suppliers, short term debts to banks etc.
-Non-current liabilities: Anything that need to pay after/more than 12 months. For e.g., long term debts to banks.
Quick Guides on Financial Reports
For myself, the info I look for in this Balance Sheet is whether the company is cash rich. People said cash is king, when an economy crisis strike, cash flow in a company is most crucial to sustain the company. For me, I will just use Total Current Assets - Total Current Liabilities. If the amount is negative, which mean the company is not cash rich, but it doesn’t mean they are not good, just if they are cash rich company, would be a plus point for me. We don’t have to be so particular with the numbers and those aliens financial terms, just keep it simple, if a company need to sell all assets and repay all liabilities, are there any money left?

3. Cashflow Statement
The final statement that can show us where does the income of the company came from for the past 3 months. A company can have multiple sources of incomes and this statement will segregate it out.
- Cashflow from operating activities: Operating activities meaning any activities that directly relate to the sales of products and services. Cashflow can be in and out, so they will plus and minus some items around (for me I just roughly look what are those, and to see any special onetime gain like sold of subsidiary company or onetime loss like paying compensation to certain party), and we will see the exact cashflow generated from Operating Activities.
Quick Guides on Financial Reports

- Cashflow from investing activities: Any activities involving investing such as purchase and selling of shares, purchase of PPE, businesses.
Quick Guides on Financial Reports

- Cashflow from financing activities: Any activities involving banks and finance, for instance, payment of dividends, debts, acquire loans from banks etc.
Quick Guides on Financial Reports

For me, the info I look for in Cash flow statement is are there any suspicious or special gains or losses that contribute to the revenue. Some companies might have low operating income, but they have a onetime gain of activity let say they sold a piece of land. The gain from the selling of the land will also contribute to the profit and it might confuse the investors that the company is doing very well, if they didn’t check on this cashflow statement. If took out the onetime gain of the selling of the land, the actual operating net income might be in deficit!

I guess these pretty sum up my general understanding about the financial reports, try to read as much reports as possible and eventually those figures and terms will be friends of yours. Some homework and efforts need to be done on this investing journey.

Thanks for reading all the way to hereHappy Learning!!!
Quick Guides on Financial Reports
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