SIMPLE IS BETTER – ISSUE -17 – NUMBERS TELLS YOU EVERYTHING – 2

In the previous article (SIB-16) of the same series, I have explained needs for checking a management quality. And also explained what if we invest in the company which has troublesome management. Now, I am going to explain how we can judge the management through accounting and protect our wealth.

Entire series of “Numbers tells you everything” is based on the books –

• Financial Shenanigans – Howard Schilit
• Quality of Earnings – Thornton L. O’glove
• The Financial Numbers Game – Charles W. Mulford
• Creative Cash Flow Reporting – Charles W. Mulford

I have tried to cover up concepts available with the above books.

For Detail Issue, Click here —> SIMPLE IS BETTER – ISSUE -17 – Numbers tells you everything – 2

SIMPLE IS BETTER – ISSUE -16 – NUMBERS TELLS YOU EVERYTHING

We have seen that equity investment has provided decent returns to those who have made an investment into a decent business with having decent management. I have also explained a similar concept to my articles of Pat Dorsey and Kite Flying regarding business + management combination.

Accounting is a language of business, we need to understand it well so that we can make communication with numbers.

I will try to explain all manipulation in a simple manner into the upcoming issues of the same series.

Entire series of “Numbers tells you everything” is based on the books –

• Financial Shenanigans – Howard Schilit
• Quality of Earnings – Thornton L. O’glove
• The Financial Numbers Game – Charles W. Mulford
• Creative Cash Flow Reporting – Charles W. Mulford

I have tried to cover up concepts available with the above books.

For Detail Issue, Click here —> SIMPLE IS BETTER – ISSUE -16 – NUMBERS TELLS YOU EVERYTHING

SIMPLE IS BETTER – ISSUE -15 – MERGER

We have seen about the demerger into the last issue of the series. Now, I am going to explain similarly to the merger.

Merger-

“A merger is an agreement that unites two existing companies into one new company. Mergers and acquisitions are commonly done to expand a company’s reach, expand into new segments, or gain market share. All of these are done to please shareholders and create value.” – Investopedia

For Detail Issue, Click here —> SIMPLE IS BETTER – ISSUE -15 – MERGER

SIMPLE IS BETTER – ISSUE -14 – DEMERGER

We have seen many companies are separating their business division to the different entities and many times, those different entities are getting managed differently.  We also consider such step of the management as a shareholder-friendly and value creation for the shareholders of the company.

In this issue, I am going to explain what demerger is and how it can impact the financial of a company?

For Detail Issue, Click here —> SIMPLE IS BETTER – ISSUE -14 – DEMERGER

SIMPLE IS BETTER – ISSUE -13 – BUYBACK

I have mentioned during the series of Warren Buffett’s letter that buyback done by the company considers good. Also when the market value of the company is available at discount from intrinsic value and company does not have a better opportunity to make an investment then company has to repurchase own shares. We have heard that the company having good management then they come up with a buyback and others will come up with a dilution of capital. The buyback is one of the criteria for judging a capital allocation decision of management that whether good or not.

What is Buyback?

For Detail Issue, Click here —> SIMPLE IS BETTER – ISSUE -13 – BUYBACK

SIMPLE IS BETTER – ISSUE -12 – FUND FLOW ANALYSIS

We have seen in the previous simple is better to issue regarding profit and loss account in Issue-8, balance sheet in Issue-9, Relationship between balance sheet and profit & loss account in Issue-10, and Cash flow statement in issue-11. Analysis of balance sheet is essential for a better understanding of the financial strength of the company. Balance sheet majorly focuses on the sources from where we have brought the fund and at where we have deployed that fund.

Equity and liability side shows us a source of funds and assets side show us an application of the funds which we have brought.

We have to check in detail that does fund get proper utilization which company has to bring or not. For proper understanding, we need to prepare and analysis fund flow statement. Using fund flow analysis, we can come to that fund is effectively utilized by the management or not. This analysis also helps us to know where the fund is going and from where the fund is coming to the business. Does fund utilize to the wrong places or does fund brings from the sources which can be not favorable for the owners of the company?

For Detail Issue, Click here —> SIMPLE IS BETTER – ISSUE -12 – FUND FLOW ANALYSIS

SIMPLE IS BETTER – ISSUE -11 – CASH FLOW STATEMENT

We have seen profit and loss account in Issue-8, Balance sheet in Issue-9 and Relationship between balance sheet and profit & loss account in Issue-10. After understanding of Profit & loss account and Balance sheet, we move forward to the third financial statement in the current issue that is “Cash flow statement”.

“The cash flow statement shows how much cash comes in and goes out of the company over the quarter or the year.” – Investopedia

For Detail Issue, Click here —> SIMPLE IS BETTER – ISSUE -11 – CASH FLOW STATEMENT

SIMPLE IS BETTER – ISSUE -10 – RELATIONSHIP BETWEEN PROFIT & LOSS ACCOUNT AND BALANCE SHEET

We have seen profit and loss account in Issue-8 and Balance sheet in Issue-9. There is a relation between profit & loss account and balance sheet; which I am going to discuss in the current issue. We have to understand that relationship for better analysis of the financial statement and make a more wise investment decision.

No financial statement useful to us in isolation. We have to understand the impact of changes in one element on the other element of the financial statements which can be much use to us for knowing hidden stories of the companies. We can become better investors when we can able to understand the hidden truth behind the financial statements.

For Detail Issue, Click here —> SIMPLE IS BETTER – ISSUE -10 – RELATIONSHIP BETWEEN PROFIT & LOSS ACCOUNT AND BALANCE SHEET

SIMPLE IS BETTER – ISSUE -9 – OUR LIFE AND INVESTMENT – 3

We have seen profit and loss statement in issue 8. Now, in the current issue, I am going to discuss on the balance sheet. The balance sheet is another important financial statement which is essential for analyzing the financial strength of the person and of the company.

“A Balance Sheet is a statement of the financial position of a business which states the assets, liabilities, and owners’ equity at a particular point in time. In other words, the balance sheet illustrates your business’s net worth.” – The Balance

For Detail Issue, Click here —> SIMPLE IS BETTER – ISSUE -9 – OUR LIFE AND INVESTMENT – 3

SIMPLE IS BETTER – ISSUE -8 – OUR LIFE AND INVESTMENT – 2

We have seen in issue 7, that our life and businesses having a relationship & similarities and due to the understanding of our life help us to make better investment decisions.

In the current issue, I try to relate other similarities between our life and the business. I am going to explain profit and loss statement of the company with examples of our life which make it simpler to understand.

For Detail Issue, Click here —> SIMPLE IS BETTER – ISSUE -8 – OUR LIFE AND INVESTMENT – 2