Financial statements are essentially the most important source of information about a company for any investor, since it is the statements that make it possible to assess the current financial position of the business, the dynamics of its indicators from period to period, and also to make forecasts for further results.
Of course, detailed comments that can be found, say, on a corporate website or in the media, give an idea of the main advantages of a particular company. However, in order to make an informed decision, experienced investors usually seek to understand in more detail what is happening with the business.
Since most financial statements are strictly regulated, they are published on the tax inspectorate's resources in a standard format, and the main parameters are easy to find.
Obviously, these are some of the key financial indicators, the dynamics of which investors look at first. There are no surprises here: if there is a positive trend and revenue covers the expenses, and the profit is enough for the business to pay off, then such a company will be able to fulfill its obligations to investors to pay loans or promised dividends.
If the company exists or is actively scaling mainly through borrowed funds (attracted loans, bond loans, etc.) and has virtually no equity, this may scare off an investor. At a certain point, the credit burden for such a company will be unbearable, and it will not be able to pay off its obligations.
The indicators are important for assessing the company's funds for upcoming payments on its obligations. Depending on the industry and business model, responsible businessmen form and maintain a liquidity reserve in advance, sufficient to cover their short-term obligations. If the business is characterized by high turnover, and the generated cash flow becomes stable and predictable, the founder does not necessarily have to constantly hold large amounts of liquidity. But it is important to monitor the balance of terms and amounts between expected receipts and upcoming payments.
Also a very important, but not always unambiguous parameter of financial reporting. An additional complication is that this data may be disclosed in public reporting irregularly or insufficiently (mostly only in the annual reporting format).
- If the flow is negative, then most likely the generated revenue is not enough to cover all expense items. On the one hand, this may indicate a high risk and unprofitability of the business. On the other hand, this is a fairly standard phenomenon for actively growing companies that actively invest in hiring a team and marketing in the expectation that future profits will cover all investments. Accordingly, it is important to understand at what stage the business is, what are the sources of investment and the prospects / volumes of return on investment (calculated based on previous periods).
— If the flow is positive, then this is a much more favorable factor, but an experienced investor will definitely find out its main source: standard transactions within the framework of the implementation of the main type of activity or the results of some one-time transactions (sale of assets / currency revaluations, etc.). This is important, since even a positive flow does not always indicate the effectiveness of the business.
Companies receive it as a confirmation of their solvency for a successful entry into the public debt market. The credit rating is most important if the founder wants to invest funds in bonds or transfer money under a direct investment loan agreement. If there is an interest in shares, you can also focus on the presence of a credit rating, its level and which agency assigned it. However, the willingness to pay the bills does not guarantee the growth of securities.
In this point, it is necessary to pay attention to which company conducts audits. If it is among the top in the industry, has been operating in the market for a long time and is not involved in any fraud scandals, its conclusions about the completeness and correctness of financial statements can be trusted.
Today, any person has access to a whole host of systems for checking counterparties, with the help of which it is possible to track the flow of incoming lawsuits. A sharp increase in the number of lawsuits and claims is a signal that the company has problems.
In conclusion, we will cite another aspect, which, however, has nothing to do with finances - it is from the category of the "human factor". People at the helm of business and their public behavior can potentially become markers of probable problems. If the owner of the company or a top manager behaves inappropriately, allows themselves ambiguous statements and antics, nothing and no one will prevent them from acting dishonestly in business relations in the future. Therefore, investors, as a rule, first of all monitor the way in which the top officials of the company they are considering for investment are mentioned in the media.
I would still like to see more disclosure of some topics, but in general the article covers all the important issues related to financial activities. I will follow the release of new articles and study the topic of finance in detail.
Finally found some useful information for myself in the field of finance. Thanks to the author for a brief overview of a topic that is important to me and would like to get a little more detailed information.
The information in general turned out to be useful and informative. It is not surprising that many do not understand how to manage finances because they do not study such articles. Thanks to the author for the explanations in the field of finance.
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