Learn To Speak the Language of Business (For Stock Investment)

Attending a course run by an equities investment portal can be beneficial for investors and  beginners like me. It would enable me to get a better understanding of business  news and company announcements that have made no sense before. Thus I attended one organized by EquitiesTracker.com and it was definitely time well spent.  
“Accounting is the language of business; you have to learn it like a language. You can’t be comfortable in a country if you aren’t comfortable with the language. To be successful at business, you have to understand the underlying financial values of a business.”- Warren Buffet
With simple guidelines and samples, here are some key takeaways which might be useful for you to better understand business language and make an informed investment decision in the future.

What on earth is a Profit and Loss Statement?

Basically, this statement tells you the health status of a company and contains three major elements: Revenue, operating expenses, and net profit.
  • Revenue is the cash inflows resulting from delivering or producing goods, or rendering services, or other activities that make up the bulk of the company’s major operations. Usually in the form of sales minus sales discounts, returns, and allowances.
  • After deducting the cost of sales or cost of goods sold (direct cost such as raw material and labor costs) and operating expenses (indirect costs such as transportation costs and advertising costs), the amount left will be the income before taxes and interest.
  • After factoring in taxes and interest (loans and saving accounts’ interest), the company will have its net profit.
Example:
Assuming John is a snack producer and he sells 300 boxes of snacks to three supermarkets every month. Each box costs RM10.That means he will have a total revenue of RM 3000.
After deducting his production cost of RM1250 (cost of goods sold) and transportation costs of RM140 (operating expenses), his gross profit will be RM1610. After paying taxes and interest for his loans of RM345, Jason’s company will earn a net profit of RM1265 for a month.
investment terms

Okay, what about Cash Flow Statement?

In brief, this statement tells the condition of the company with three main indices: cash flows from operating activities, investing activities and financing activities. Like personal income, we are covered by cash inflows from salary, investment return and saving account’s interest.
  1. Operating
    The cash flow from this segment is mostly generated from the company’s internal business activities. Generally, this makes up the bulk of the cash inflows for a company.
  2. Investing
    Cash received from the sales of long-term assets or cash spent on capital expenditure like investments, acquisitions, and assets.
  3. Financing
    Cash generated from issued debt or equity, dividends, and debt repayments.
NOTE: It is important for you to invest in a company that generates positive cash flow so that it will remain solvent, financially speaking. The same rule applies to our personal finance. IF you continue to make money and yet unable to register positive cash flow (savings) in your account, something is wrong, right?

Finally, Balance Sheet!

This is the statement that tells the wealth or value of a company by listing the assets, liabilities, and equities. You can analyze this statement of a company over several quarters to monitor its debts level and how “good” they are in repaying the debts.

Types of assets can be split into two categories:

  1. Current asset
    Cash and cash equivalents, inventories, accounts receivable and prepaid expenses for future services.
  2. Non-current or fixed assets
    Any asset that is held by the company for more than 12 months such as property, plant, and equipment. Intangible assets such as brand, licenses, patents and intellectual property are included in this form too.

Types of liabilities is similar to assets:

  1. Current liabilities
    Accounts payable, current income tax liabilities, short–term provisions and short term loans.
  2. Non-current liabilities
    Long term loans, issued debt securities, and provisions for warranties or court decisions.

Owner’s equity can exist in three forms:

  1. Share capitalAccounts for the initial amount of shares issued to shareholders by the company.
  2. Reserves or share premium
    The amount paid by shareholders for shares in excess of its nominal value.
  3. Retained earnings
    A portion of net income retained by the company from distributed to its owners as dividends.
investment

Here are some additional terms you must understand to start your journey in stocks investment

investment glossaries
After figuring out the steps in selecting a stock for your investment portfolio and how to speak the basic language of business, you can refer to this cool tool and start making your own analysis on the company’s financial position. It is strictly important to understand the company profile thoroughly before you wish to invest.
https://www.comparehero.my/blog/learn-to-speak-the-language-of-business-for-stock-investment

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