Short-Term Debt: Evaluating Financial Strength and Cash-Generating Growth

Short-term debt and current liabilities often get combined into the same bucket. When looking at the debt to equity ratio of the company, most investors calculate the ratio using the total liabilities divided by the equity. Analyzing a company’s debt position can be useful to determine if the company uses debt to fuel the company’s […]

How to Read SEC Filings – Dissecting the 10-k Annual Report

If you want to learn more about a company or invest in a company, you can find a plethora of information on the company’s annual report, otherwise known as a 10-K. The 10-K offers an in-depth look at a public company’s financials, the risks it faces, and operating results for the previous year. Warren Buffett […]

Simple Balance Sheet Structure Breakdown (by Each Component)

“Never invest in a company without understanding its finances. The biggest losses in stocks come from companies with poor balance sheets.” Peter Lynch The ability to read a company’s financials, such as the income statement, balance sheets, and cash flow statement, is a key source of data for investors, both do-it-yourselfers and institutional investors. As […]

What is PPE in Accounting?

PPE accounting refers to long term assets categorized as PPE (plant, property, and equipment), which are tangible assets that are expected to create cash flows over the long term. These can be significant to investors because their depreciation schedules directly influence the bottom line (earnings). This post will cover: The Basics of PPE and Depreciation […]

Days Sales in Inventory Guide – With Examples That Signal Future Problems

Days Sales in Inventory, or DSI, can be a invaluable ratio in evaluating inventory management of a public company—which can also sometimes signal future demand (and thus revenue) problems in advance. In this post, we’ll discuss: The Days Sales in Inventory (DSI) calculation Examples of bad DSI trends Best applications of the Days Sales in […]

Types of For Sale Securities and Their Accounting Treatment (AFS/HTM/HFT)

Have you wondered what all those assets on an insurance company’s balance sheet were? Or why do companies carry such a large mix of marketable securities? Did you know that Microsoft owns over $120 billion in short-term investments, over 70% of its current assets, and over 39% of its total assets? That is a large […]

Changes in Working Capital: An Easy Walk Through

Changes in working capital helps explain how a company uses its assets to generate growth. Some companies build up inventories, pay down liabilities, or extend their repayments to vendors to growt their cash flows. The better we understand how a company uses its assets and liabilities, the better we can predict changes in value. Please […]

SEC Form 4 Explained for Beginners

One of the best ways to track how management feels about the company they work for is to watch for insider buying or selling. Using Form 4 can help you determine any trades leadership makes regarding their stock options. With the increase of pay for insiders (C-suite) in the way of stock options, tracking their […]

How to Calculate Days Sales Outstanding (DSO) – w. Real Examples

The DSO acronym in finance stands for average days sales outstanding, and is critical to understanding a company’s revenue and sales trends. The DSO calculation is simple, yet its usefulness should not be glossed over. Using the DSO formula can help a financial analyst spot when a company could be “stuffing the channel”, leading to […]

Return on Total Capital and How to Calculate it

“Leaving the question of price aside, the best business to own is one that over an extended period can employ large amounts of incremental capital at very high rates of return.” – Warren Buffett, 1992 Berkshire Hathaway Shareholder Letter All great businesses generate high returns on capital, and they do so regularly. Companies such as Microsoft, […]