I see a lot of YouTubers treating stock-based compensation as a "non-cash" item they can disregard, but it's essentially a company paying its employees with shareholder money; if they used money from selling shares to cover salaries, you'd see just how real of an expense it is

Whilst accountants know how to prepare a BALANCE SHEET… 95% don’t know how to read them.

Interpreting balance sheets is the HARD bit.

So, here are the first 3 things I look for when reading a balance sheet.

Pull up a chair.

Let's go! 👇

When I review a balance sheet, I need a detailed picture of how the business is funded.

I’ll build out a picture under 3 headings;

1. Capital Structure
2. Working Capital Profile
3. Liquidity Headroom

Let's tackle them each in turn

1. Capital Structure.

The capital structure tells you how a business is funded / owned.

Is the business funded by debt or equity? What is the mix?

Who are the investors and what are their motives? And what are the rights and obligations attached to each?

Take each debt or equity instrument in the balance sheet and get clear on the following:

Who owns it?
How much have they put in?
What are they owed today?
What does their return look like if things go well
What are their rights if things don’t go well?
When does it mature?

I visualize this in a table.

I put the most senior ranking debt at the bottom.

Yes, this is upside down to the way you may have seen this presented before.

What can I say, I'm a rebel 😎

Thread Threadexplaining #PE Ratio & #PEG Ratio & its use in #FundamentalAnalysis

(Must read for #FA learners)

🙏Like & RT to spread learning with all🙏

Views Welcome👉@dmuthuk @Vivek_Investor @datta_arvind @caniravkaria @FI_InvestIndia

#FundamentalAnalysis #StockMarket

1⃣

Price to Earnings (#PE) ratio, also known as price multiple or earnings multiple is the ratio obtained by dividing the current share price by earnings per share (#EPS).

#StockMarket #Investing #FundamentalAnalysis

2⃣

P/E ratio is a reflection of the market's opinion of the earnings capacity & future business prospects of a company.

Companies which enjoy high investor confidence & have a higher market standing usually command high P/E ratio.

#StockMarket #Investing #FundamentalAnalysis

3⃣

On the face, it would seem that companies with low P/E ratios would offer most attractive investment opportunities. This is not always true.

Companies with high current earnings but dim future prospects often have low P/E ratio.

#StockMarket #Investing #FundamentalAnalysis

4⃣

As an #investor your primary concern is with future prospects of a company & not so much with its present performance.

This is why companies with low current earnings but bright future prospects usually command high P/E ratio.

#StockMarket #Investing #FundamentalAnalysis

@Dinesh_Sairam @a_basumallick @ashwinidamani Questions that are only answered with time haha.

@a_basumallick @ashwinidamani Just to add - sustainable FCF is a faraway concept for most till (if) they gain scale or innovate/add value. Till then, it's generally always a struggle to manage WC and capacity addition. Wouldn't expect that to change for a while.

Everything about Free cash Flow Simplified!

What we will talk about in this 🧵🧵:

1⃣What is Free Cash Flow
2⃣How to calculate Free Cash Flow
3⃣Types of Free Cash Flow
4⃣Importance & Limitations of Free Cash Flow

Let's dive in ⤵️⤵️

What is Free Cash Flow?

Free cash flow means the cash that is left over after a company pays for its operating expenses and capital expenditures (Capex) like purchasing new machinery, equipment, land & building, etc. and satisfying all its working capital needs.

In simple words, suppose whatever cash that is left with you after you spend your salary or income is known as Free cash flow that you can use for different purposes.

The more FCF a company has, the better it is. Businesses which generate high FCF can:-

1⃣Give investors higher dividends
2⃣Do share buybacks
3⃣Build a war chest for acquisitions or Capex.
4⃣Reinvest in the business when opportunity arises with lesser dependence on debt.

How to calculate Free Cash Flow👇:

To calculate free cash flow, all you need to do is open the Cash Flow Statement and subtract "Net Capital expenditure" from "net cash from operating activities".