SG Young Investment: Understanding Financial Statements (Part 1)On by
To be a trader, you have to know how to learn financial statements. I’d say that is a skill that every trader must know. In fact, Warren Buffet said that the greatest skill a young person can learn during his / her college days is the skill of accounting. In an annual report, you will fundamentally find 3 financial claims. I shall go through all 3 claims in detail as simple as I can.
For this post, we shall use the business Singtel’s financial statement as an example. It’s the largest company outlined on SGX in conditions of market capitalization. It is also one of the blue-chip shares and is one of the 30 components stock that make up the Straits Times Index (STI). Let’s focus on the income statement.
You can access Singtel’s income statement here. Alternatively, you can get the entire annual survey from either SGX or Singtel’s own investor’s relation website. The income statement shows how much an ongoing company is making or losing. The very first thing we see on the income statement is the revenue. It is the sales, the company has designed for that quarter or season. This is the money it earned through selling a service or product.
For Singtel, it can be the offering of cellular phone service which we pay a regular subscription. The amount of money collected is recorded as income. Next, the cost is seen by us of goods sold. This is the cost that is involved in creating the revenue directly. It can be labor costs, raw material costs, or the original cost price of the products.
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- What the company buys
- Depreciation and amortization
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This is deducted from the revenue. After deducting the cost of goods sold from income, we get gross income. Gross profit is revenue minus cost of goods sold. 5.5 Billion. This is after deducting the cost of goods sold of 12.7 Billion. Next we see Selling General & Admin Expenses. This is also known as operating expenses and includes expenses such as marketing costs, administrative salaries, and research and development costs. Another is Depreciation & Amortization. This cost is the depreciation on resources that the ongoing company buys.
Assets like machineries and motor vehicles will drop in value as time passes. The cost is reflected by The depreciation of the depreciation. Another important one we have to know is operating income. This is income minus cost of goods sold, and all operating expenses. It is the profit the business created from its actual operations. For Singtel, it’s the earnings from its main business in the mobile, internet, and IPTV services.
You’ll see the next 2 rows being interest expense than interest income. This information the eye the ongoing company paid on bonds it issued or the interest collected from bonds it is the owner of. EBT means earnings before taxes. A far more accurate term, you can try is EBITA. That is cash flow before interest, amortization, and taxes.