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Read financial reports with a book
An introductory book on financial knowledge written by Xiao Xing, a professor at Tsinghua University, has been a best-seller for 10 years. It goes from simple to profound and is humorous. It is worth reading carefully. The book contains a large number of real cases to help readers understand the practical application of financial statements and improve financial analysis capabilities and decision-making skills.
Bearbeitet um 2024-12-12 22:31:55
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Read financial reports with a book
Preface: When learning financial knowledge, you need to look at the business with the purpose of looking at the business, rather than getting caught up in accounting numbers and separating the numbers from the business they describe. Once you think of financial data as the language that tells you how your business is doing, you'll find it interesting and easy to understand.
NO.01 Balance Sheet: The Camera of the Enterprise
Overview: The balance sheet mainly reflects where the funds invested by shareholders have gone? Who does the company owe money to? It is a point-in-time concept, so it is called photography.
Assets and Liabilities
1. The left side of the balance sheet is "Assets" - tells what the money was used for. The right side is "Liabilities and Ownership Equity", which tells where the money came from (who is owed money).
2. The difference between current assets and non-current assets lies in whether they are assets that can be realized or used within one year or within an operating cycle of more than one year.
Non-current assets include long-term equity investments, fixed assets, and intangible assets
3. The difference between long-term equity investment and financial assets: Long-term equity only includes investments that have control, joint control, or can exert significant influence on the invested enterprise. Otherwise it is a financial asset.
4. Estimated net residual value; the value of a fixed asset at the end of its estimated useful life minus the estimated disposal costs.
5. Foreign land ownership can be privately owned, so land is a fixed asset. However, land ownership in our country can only be owned by the state, so land is an intangible asset.
6. The difference between assets and expenses: Assets can be exchanged for something useful in the future. For example, 10,000 yuan can buy a lot of office supplies. But the expenses are gone once they are used up. For example, 10,000 yuan in office supplies will become office expenses in the next few months. Therefore, prepaid rent and advertising expenses are deferred expenses. In many cases, today's assets are tomorrow's expenses, and there is only a difference in the concept of time.
Current accounting standards include deferred expenses with a validity period longer than one year as long-term deferred expenses, while deferred expenses with a validity period of less than one year are directly recorded in relevant expense items.
8. Leasing is actually a company purchasing an asset in installments, and rent is the installment payment. The leased assets are considered to be the assets of the lessee. On its statements, the total rent to be paid in the future will also be recorded as a liability when the lease contract is signed, that is, long-term payables.
9. Bonds payable: The principal and interest of bonds issued by a company to raise (long-term) funds.
Owner's equity
1. Name: Shareholders' equity is called owner's equity for a limited company, and shareholders' equity for a joint-stock company. It reflects the company's own capital. Share capital is called equity in a joint-stock company, but in a limited company, it requires paid-in capital, which is equal to the registered capital. To be precise, it is called paid-in registered capital.
2. Capital reserve and surplus reserve: The former refers to the amount of investment received by the enterprise from investors in excess of the price corresponding to its share of registered capital or share capital; the latter refers to the amount formed by the enterprise withdrawing 10% of its after-tax profits in accordance with regulations. It is the accumulation of income that is retained within the enterprise and has a specific purpose, which is unique to China.
NO.02 Income statement: the camera of the enterprise
Overview: Does the income statement reflect whether the company made money? Where is the money made? And by analyzing sustainable operating profits and unsustainable non-operating income and expenses, it can help companies infer earnings in the future. It is a time period concept.
Within business
1. Value-added tax is collected by enterprises from consumers on behalf of the state. It does not belong to the enterprise from beginning to end, so the value-added tax collected by the enterprise is a liability. It is a serious crime for a company to evade VAT.
2. Financial expenses: Financing expenses incurred by an enterprise to raise funds for production and operation in the short term, including interest expenses and income, exchange gains and losses and related handling fees, cash discounts incurred or received by the enterprise, etc. When financial expenses are negative, it means increased profits.
3. Investment income: interest income earned during the holding period of corporate bond investments.
Gains from changes in fair value: Trading financial assets measured at fair value and changes in which are recorded in current profits and losses.
Asset difference loss: the loss caused by the enterprise's provision of various assets or impairment provisions.
Asset impairment loss: the loss caused by the enterprise's provision for impairment of various assets.
Outside business
Non-operating income: An enterprise's income other than operating profits, such as government subsidies, profit gains, donation profits, etc. that have nothing to do with the daily activities of the enterprise.
Non-operating expenses: reflect the company’s expenses other than operating profits, including charity donations, extraordinary losses, losses, damage and scrapping of non-current assets, etc.
Formula 1: Operating income - Operating costs - Taxes and surcharges - Sales and management assets Impairment losses Gains from changes in fair value Investment income Asset disposal gains = operating profits
Formula 2: Operating profit Non-operating income – Business office expenses = Total profit
Formula 3: Total profit - corporate income tax = net profit
Note: The total profit is calculated based on accounting standards, and the taxable income is calculated based on tax laws. Therefore, 75% of the total profit does not equal the net profit, but 75% of the taxable income equals the net profit.
NO.03 The birth and internal logic of financial statements
01Production costs and operating costs
Production costs: This is the unsold inventory on the balance sheet
Variable costs: refer to costs that will continue to increase as output increases, such as raw materials
Fixed costs: refers to costs that will not change within a certain range regardless of the amount of output, such as factory depreciation and fixed labor wages.
Operating cost: the cost in the income statement, which is the cost of the part of the product that is sold (in inventory).
02Gross profit
Definition: Gross profit refers to the difference between operating income and operating costs. However, since operating costs only refer to the cost of the products sold in the production costs, operating costs are divided into variable costs and fixed costs. Fixed costs will be allocated between sold or inventory products. Therefore, the increase in inventory products may lead to a decrease in operating costs, which will lead to an increase in gross profits. Therefore, the increase in gross profits is not necessarily caused by performance improvements, but may also be caused by Finished goods inventories increased.
03R&D expenditure
Definition: Research refers to the study of technology. Development refers to the costs incurred in designing and making molds in order to apply the technology to product manufacturing after successful technological research.
Accounting treatment
Research expenses: credited to administrative expenses
Development stage: recorded as intangible assets and amortized in installments (such as patent application fees)
Can’t tell the difference: administrative expenses
Principle: Technical research has great uncertainty. Uncertain investments cannot be regarded as assets of the enterprise. Once they are spent, they are gone. Therefore, they are recorded as expenses. This is also a requirement of accounting prudence.
Off-balance sheet value: For example, the value of the brand created by advertising and the technology successfully developed independently by the company are difficult to reflect as assets in financial statements, making these assets become off-balance sheet assets. Therefore, some companies authorize others to use, transfer, or invest in off-balance sheet intangible assets, and achieve special purposes by affecting transaction pricing. Another example is selling technology to others and then buying it back.
Practical tip: Companies with high profits prefer to record R&D expenditures in overhead expenses, thus paying less tax. However, in order to make their financial statements look good and prove their strength, companies with operating difficulties or new start-ups are more willing to put them in intangible assets.
NO.04 Anatomy of Cash Flow Statement
Definition: Cash flow statement, a statement that reflects the inflow and outflow of cash and cash equivalents of an enterprise during a certain accounting period. Cash refers to the company's cash on hand and deposits that may be used for payment at any time; cash equivalents refers to investments held by the company that are short-term, highly liquid, easily convertible into known amounts of cash, and have little risk of value changes.
The cash flow statement shows the reasons for changes in monetary funds on the balance sheet. That is to say, it reflects the ins and outs of cash and monitors corporate operational risks. Enterprises most hope that most cash will flow in from operating activities and flow out from investing activities.
Classification of corporate cash flow
cash flow from operating activities
cash flow from investing activities
cash flow from financing activities
Financing
Debt financing: refers to the incorporation of funds through loans from banks, non-bank financial institutions or the discovery of bonds.
Equity financing: refers to a financing method in which the shareholders of the enterprise are willing to transfer part of the ownership of the enterprise, introduce new shareholders through the enterprise's capital increase, and at the same time increase the total share capital. This kind of financing enterprise does not need to pay principal and interest.
lease
operating lease
Financing lease: has a long term and a large amount. From the perspective of accounting, it is a purchase method with installment payments. When an enterprise signs a financing lease agreement, the future rent must be recognized as a liability.
NO.05 Make full use of three reports to open up the financial data meridians