# Accounting for beginners



## RandomInvestor (17 January 2017)

Hey guys so I got a bunch of questions espically when it comes to the accounting stuff, I'm gonna try keep it on just this on post. I am still analyzing Dickers data, and looking at their annual report: 

https://www.dickerdata.com.au/CMS/DD/media/DD/PDFs/DDR/77797-DD_AnnualReport-LR.pdf

Page 29

I made a post already about the negative numbers, but I don't get it on certain items, for example on that page we have:

Payments to suppliers and employees (inclusive of GST)

Interest and finance costs paid

Income tax paid

All of these are red in brackets which means negative is this good or bad?

If for example payments to suppliers and employees was positive number and say it was in 2009 500,000, then in 2010 1,000,000, wouldn't this be bad because we are paying more money?

What does the negative indicate then? Did they take out a loan in order to fulfill this obligation?

Also income tax paid is also negative how does that make sense ? Thanks.


----------



## McLovin (17 January 2017)

Hey mate

I think you're getting yourself tied up in knots here. 

Take a step back and think about what you are reading. It's a statement of cashflows. All it's attempting to show is how much money came in and how much money went out of the business. 

In this case, they received money from customers. That is the money came in to their bank account. They also received some interest on the money they have sitting in their bank accounts. 

Every business has expenses. In this case the big one is paying their suppliers and employees. This item is negative and in red because money went out of the business. They have about $29m in debt which you can see on their balance sheet. This debt needs to be serviced which is represented by cash going out under "interest and finance costs paid". Finally, like any business that makes a profit the ATO wants their share of it. This is represented by income tax paid, which again is negative because cash left the company's bank account to pay the ATO. 

In order to get operating cash flow, you take all the money that came in during the year (payments from customers + interest) and subtract all the money that went out (payments to suppliers/employees + finance costs + tax paid).



RandomInvestor said:


> If for example payments to suppliers and employees was positive number and say it was in 2009 500,000, then in 2010 1,000,000, wouldn't this be bad because we are paying more money?




No, if payments to suppliers and employees was a positive number that would mean your employees are paying you money to work there. And your suppliers are paying you to take their products.


----------



## RandomInvestor (17 January 2017)

McLovin said:


> Hey mate
> 
> I think you're getting yourself tied up in knots here.
> 
> ...




Yeah I think I am getting tied in knots finance is some confusing stuff. Oh I think I get it! So on statement of cash flows it showing money going in and out. Red is negative and means money going out of the business, and normal numbers is money going into the business?

I need to learn some accounting basics, I was doing it before but was quite boring.


----------



## McLovin (17 January 2017)

RandomInvestor said:


> Red is negative and means money going out of the business, and normal numbers is money going into the business?




Yes. Exactly. They usually just use brackets to indicate negative, not red.


----------



## RandomInvestor (17 January 2017)

McLovin said:


> Yes. Exactly. They usually just use brackets to indicate negative, not red.



Ah ok thanks a bunch man you are seriously a legend. One very last thing I am still reading the annual report does this negative numbers cash going out and positive numbers cash going in, rules also apply when reading other financial statement or only the cash flows?


----------



## pixel (17 January 2017)

RandomInvestor said:


> Ah ok thanks a bunch man you are seriously a legend. One very last thing I am still reading the annual report does this negative numbers cash going out and positive numbers cash going in, rules also apply when reading other financial statement or only the cash flows?



it's accounting standard and applies uniformly to all financial statements.
The only proviso: the red colour is not mandatory. Brackets or a minus sign (an older standard even allowed the minus being placed AFTER the amount) will do. Not everybody has a colour printer.


----------



## RandomInvestor (17 January 2017)

pixel said:


> it's accounting standard and applies uniformly to all financial statements.
> The only proviso: the red colour is not mandatory. Brackets or a minus sign (an older standard even allowed the minus being placed AFTER the amount) will do. Not everybody has a colour printer.




Ah ok yeah I saw that just now, thanks


----------



## luutzu (17 January 2017)

RandomInvestor said:


> Ah ok thanks a bunch man you are seriously a legend. One very last thing I am still reading the annual report does this negative numbers cash going out and positive numbers cash going in, rules also apply when reading other financial statement or only the cash flows?





Note too that not all outflow are bad, particularly the outflows stated in the Statement of Cashflows. 

I mean, bills got to be paid, employees better be paid etc. 

So what you'd want to look for are businesses where the net operating cash flow is positive (it's making income after operating expenses), then this net operating income more than able to pay the other investing and financing cash.

In general, you don't want to see too much positive inflow in financing, not year after year; you'd want to see more negative investing (depends on business, but it's good that a business invests).


----------



## galumay (17 January 2017)

I suggest you try reading the book I linked you to in another thread, you seem to be making a habit of starting threads to ask the most basic of maths/accounting/finance question and its pretty obvious its an area you need significant self education. Hope that doesnt come across as snarky, but honestly you come across as being a long way from being in a position to make any investment decisions.


----------



## luutzu (17 January 2017)

galumay said:


> I suggest you try reading the book I linked you to in another thread, you seem to be making a habit of starting threads to ask the most basic of maths/accounting/finance question and its pretty obvious its an area you need significant self education. Hope that doesnt come across as snarky, but honestly you come across as being a long way from being in a position to make any investment decisions.




A person got to start somewhere, Mr. Learner.

We aren't all born with Damodaran's Discounted Cash Flow excels.


----------



## RandomInvestor (17 January 2017)

galumay said:


> I suggest you try reading the book I linked you to in another thread, you seem to be making a habit of starting threads to ask the most basic of maths/accounting/finance question and its pretty obvious its an area you need significant self education. Hope that doesnt come across as snarky, but honestly you come across as being a long way from being in a position to make any investment decisions.




Ah ok thanks for feedback. My maths is pretty bad I been working on it.  Also I'm a beginner investor so I'm not going to be asking advanced questions. Or should I already know this stuff?


----------



## galumay (17 January 2017)

We all have to learn most of it, school doesnt teach much in the line of finance and economics so if you dont have a tertiary background in the area then you have to start from the beginning. Maybe I did come across as too harsh, but I sort of get the feeling that a lot of the questions you are starting separate threads for, could be found with a little google fu! Maybe one thread for all your questions might make more sense? Then if you cant find the answer to something online you can add it to the thread. 

As you implied in your pm to me, questions and discussion are the life blood of a forum so I dont want to appear rude, or to be suggesting that you shouldnt post questions, but a separate thread for each question is probably unnecessary. 

Its great that you want to learn - and that you recognise there is a level of knowledge you should have before you start investing - that already puts you well ahead of the pack. There are also some great investing threads here on ASF you could learn from, there is a fantastic one started by craft about DCF valuations that helped me a lot.

https://www.aussiestockforums.com/threads/present-value-of-future-cash-flows.23385/


----------



## RandomInvestor (19 January 2017)

galumay said:


> We all have to learn most of it, school doesnt teach much in the line of finance and economics so if you dont have a tertiary background in the area then you have to start from the beginning. Maybe I did come across as too harsh, but I sort of get the feeling that a lot of the questions you are starting separate threads for, could be found with a little google fu! Maybe one thread for all your questions might make more sense? Then if you cant find the answer to something online you can add it to the thread.
> 
> As you implied in your pm to me, questions and discussion are the life blood of a forum so I dont want to appear rude, or to be suggesting that you shouldnt post questions, but a separate thread for each question is probably unnecessary.
> 
> ...



No problem man. Since you haven't noticed this is already all on one thread  I'm not making any more threads relating to accounting keeping it all here.  Also did you even read my first post lol? I said I'll keep it on one post.

I also already spoke to McLovin about this.


----------



## RandomInvestor (19 January 2017)

Guys quick question I am reading an annual report on Xero and it doesn't show net income on its income statement, usually then I would refer to net profit after tax or earnings but that doesn't show either. Why do companies leave out information like this?

I can search it manually but am I supposed to do that? Thanks.


----------



## galumay (19 January 2017)

It doesnt show income because it didnt make any. It made a signifcant loss...again.

The income statement shows the income in every AR, a negative income is a loss!

Once again I am more than a little bemused that you couldn't work this out just from a glance at the financials in the AR. I am not trying to belittle you but that is a pretty obvious thing that you appear to have completely missed. As I have mentioned before it makes me think you are a long way from making decisions about investing in shares at this stage.


----------



## RandomInvestor (19 January 2017)

galumay said:


> It doesnt show income because it didnt make any. It made a signifcant loss...again.
> 
> The income statement shows the income in every AR, a negative income is a loss!
> 
> Once again I am more than a little bemused that you couldn't work this out just from a glance at the financials in the AR. I am not trying to belittle you but that is a pretty obvious thing that you appear to have completely missed. As I have mentioned before it makes me think you are a long way from making decisions about investing in shares at this stage.





For now I am just practicing, also Galumay there is alot of small things that I don't know but it doesn't matter because it can be quickly learned, there is alot of things I do know. Doesn't mean I am clueless if I don't know a few things ( I know you didn't imply this, just saying) alot of these stuff I wasn't taught or never stumbled across in books or anything so I end up discovering these things on the way.

Also what figure am I supposed to be looking at? Is it net loss?


----------



## luutzu (19 January 2017)

RandomInvestor said:


> For now I am just practicing, also Galumay there is alot of small things that I don't know but it doesn't matter because it can be quickly learned, there is alot of things I do know. Doesn't mean I am clueless if I don't know a few things ( I know you didn't imply this, just saying) alot of these stuff I wasn't taught or never stumbled across in books or anything so I end up discovering these things on the way.
> 
> Also what figure am I supposed to be looking at? Is it net loss?




Another lesson is to never really need to explain yourself to anyone.


----------



## RandomInvestor (20 January 2017)

luutzu said:


> Another lesson is to never really need to explain yourself to anyone.





dannycoyne said:


> Hey mate! If you have any doubts on accounting process and everything, maybe you could ask for professional help though. You can look for help here for accounting tips.




Ah ok thanks man I do need to learn basic accounting haven't got around to it yet.


----------



## luutzu (20 January 2017)

dannycoyne said:


> Hey mate! If you have any doubts on accounting process and everything, maybe you could ask for professional help though. You can look for help here for accounting tips.




Or use DangInvestor where you just enter the financial statement data and have it all charted, with tips for interpretation, analysis and valuation.  

I thought it's awesome. And that's not just because I wrote it


----------



## RandomInvestor (24 January 2017)

Hey guys I got another question so I am currently learning accounting basics and something doesn't make sense it says "
When a company receives cash, the Cash account is debited.

When the company pays cash, the Cash account is credited.
"

But then it says 

"
A debit is an accounting entry that either increases an asset or expense account,
 or decreases a liability or equity account. It is positioned to the left in an accounting entry.
A credit is an accounting entry that either increases a liability or equity account, or decreases an asset or expense account."

Then I am doing a quiz and it says "Generally when an expense is involved in a transaction, an expense will be" debited or credited? The answer is debited but how? Shouldn't it be credited since an expense is money going out you are paying for something?


----------



## McLovin (24 January 2017)

RandomInvestor said:


> Hey guys I got another question so I am currently learning accounting basics and something doesn't make sense it says "
> When a company receives cash, the Cash account is debited.
> 
> When the company pays cash, the Cash account is credited.
> ...




Double entry accounting.

Say you have to pay the electricity bill that is $100. The journal entries would be...

CR Cash at Bank $100
DR Electricity expense $100

So you've reduced the asset account (cash) by crediting it, and you've increased the expense account (electricity) by debiting it.


----------



## RandomInvestor (24 January 2017)

McLovin said:


> Double entry accounting.
> 
> Say you have to pay the electricity bill that is $100. The journal entries would be...
> 
> ...



A bit confusing I might need to read over it a couple times.


----------



## RandomInvestor (4 February 2017)

Alright guys I think I FINALLY understand debits and credits please tell me this explanation is right lol.

Ok so cash accounts and liability accounts are opposites right? What I mean by that is a asset account to increase you debit it and to decrease it you credit it. But liabilities are opposite to decrease it you debit it and to increase it you credit it.

Makes sense for the asset account but for liabilities is the the reason that you debit liabilities (decrease) if for example a loan is been paid off and credit if the loan is getting bigger?


----------



## RandomInvestor (4 February 2017)

I forgot to add, or am I over complicating and simply debit to decrease liability and credit to increase? If so why is it opposite? . For  asset and liability accounts the meanings are just being swapped right?


----------



## luutzu (4 February 2017)

RandomInvestor said:


> I forgot to add, or am I over complicating and simply debit to decrease liability and credit to increase? If so why is it opposite? . For  asset and liability accounts the meanings are just being swapped right?




Read Accounting for Managers (i.e accounting for idiots, and investors) instead of proper accounting for accountants and book-keepers (the smart people) 

Try to figure it out using an example and follow the money. Easier than figuring out what is meant by debit/credit stuff. I had, still have, the same problem


----------



## RandomInvestor (4 February 2017)

luutzu said:


> Read Accounting for Managers (i.e accounting for idiots, and investors) instead of proper accounting for accountants and book-keepers (the smart people)
> 
> Try to figure it out using an example and follow the money. Easier than figuring out what is meant by debit/credit stuff. I had, still have, the same problem




Oh ok but not the answer I'm looking for.


----------



## pixel (4 February 2017)

RandomInvestor said:


> Oh ok but not the answer I'm looking for.



But it's the only practical suggestion.
You seem to demand a quick transfer of the result of many years of study, without your putting up an effort. But nothing short of a brain transplant would get you that.
... or something like the Nuremberg Funnel: https://en.wikipedia.org/wiki/Nuremberg_Funnel


----------



## RandomInvestor (4 February 2017)

pixel said:


> But it's the only practical suggestion.
> You seem to demand a quick transfer of the result of many years of study, without your putting up an effort. But nothing short of a brain transplant would get you that.
> ... or something like the Nuremberg Funnel: https://en.wikipedia.org/wiki/Nuremberg_Funnel
> 
> View attachment 69838




You implying that I don't make an effort? Now that's insulting to me. I'm sorry but me spending ALL day for over a week to try figure it out seems like a pretty good effort to me. And it doesn't take "Many years of studies" to understand the difference between debits and credits so I have no idea what you're talking about.


----------



## RandomInvestor (4 February 2017)

RandomInvestor said:


> You implying that I don't make an effort? Now that's insulting to me. I'm sorry but me spending ALL day for over a week to try figure it out seems like a pretty good effort to me. And it doesn't take "Many years of studies" to understand the difference between debits and credits so I have no idea what you're talking about.




Also I believe my question was fairly simple for someone that understands accounting.


----------



## luutzu (4 February 2017)

Shameless plug ahead:

www.danginvestor.com

*For each company you just:*

Enter Financial Data -> Read auto generated Charts -> Make your own notes and scores -> Value the Business with Graham's pricing models.


*5 Minutes per report.*




*37 charts + 1 Valuation Dashboard for quickLook alone
All automatically generated and structured.*









*YOUR OWN INDEPENDENT RESEARCH & ANALYSIS*
*

*

*WITH A LITTLE HELP (WHEN YOU NEED IT)

*

*Data and research when you need it.*

*

*

Free for private investors too.


----------



## RandomInvestor (7 February 2017)

Nice sorry I didn't see this response your site sorta reminds me of Skaffold lol, which is a good thing makes investing simpler.


----------



## RandomInvestor (7 February 2017)

Hey guys so I have a question I am looking at some stuff and it says "*Revenues increase stockholders' equity " *I don't see why this is what does revenues have to do with stock holders equity?


----------



## galumay (7 February 2017)

What do you think it means?

What is revenue? What is equity?

How could revenue flow through to equity?

See if you can join the dots!


----------



## luutzu (7 February 2017)

RandomInvestor said:


> Nice sorry I didn't see this response your site sorta reminds me of Skaffold lol, which is a good thing makes investing simpler.




Now why did you go and insult my software like that?


----------



## luutzu (7 February 2017)

RandomInvestor said:


> Hey guys so I have a question I am looking at some stuff and it says "*Revenues increase stockholders' equity " *I don't see why this is what does revenues have to do with stock holders equity?




Revenue don't directly increase stockholders' equity, but it is true that, generally, increaes in revenue will increase equity.

That is, the more revenues the company make, the more money that comes in. And if the company is profitable and the extra revenue further contributes to that net profit (after tax etc.)... then net profit, usually, are paid out in dividend and *retained*.

The net profit that's retained are labelled *retained earnings* in the balance sheet, under Equity. This retained earning increases Equity.


----------



## RandomInvestor (7 February 2017)

luutzu said:


> Now why did you go and insult my software like that?



Sorry lol didn't mean to  Didn't realize you hated it. I think the idea of Skaffold is great just data accuracy is the only concern.


----------



## RandomInvestor (7 February 2017)

galumay said:


> What do you think it means?
> 
> What is revenue? What is equity?
> 
> ...





Ok Galumay so Revenue is the amount of money that a company actually receives during a specific period. And equity is well... it has a few different meanings lol. Which definition are we referring to in this context?
It does sorta make sense to me that it increases retained earnings but not equity.


----------



## luutzu (7 February 2017)

RandomInvestor said:


> Ok Galumay so Revenue is the amount of money that a company actually receives during a specific period. And equity is well... it has a few different meanings lol. Which definition are we referring to in this context?
> It does sorta make sense to me that it increases retained earnings but not equity.




Revenue is what the company sold during the year. They expect this to come in "soon", within the year etc., but it could be some time away, or never coming in. So it's not what the "...company actually receives" in the literal sense.

Hence, cash flows from operating activities provide a better guide to the company's earnings in a given year. OF course there's a bunch of other ifs and buts...


----------



## RandomInvestor (7 February 2017)

luutzu said:


> Revenue is what the company sold during the year. They expect this to come in "soon", within the year etc., but it could be some time away, or never coming in. So it's not what the "...company actually receives" in the literal sense.
> 
> Hence, cash flows from operating activities provide a better guide to the company's earnings in a given year. OF course there's a bunch of other ifs and buts...



But what about the relation to the equity?


----------



## luutzu (7 February 2017)

RandomInvestor said:


> Sorry lol didn't mean to  Didn't realize you hated it. I think the idea of Skaffold is great just data accuracy is the only concern.




I'm agnostic about it 

I just think that mine is much more superior software, even if it's a bit rough around the edges.


----------



## luutzu (7 February 2017)

RandomInvestor said:


> But what about the relation to the equity?





see reply #35 above


----------



## RandomInvestor (7 February 2017)

I did but still don't get it  I mean equity is just money investors has contributed if we are saying to increase equity aren't we saying that we are receiving more money from investors?


----------



## luutzu (7 February 2017)

RandomInvestor said:


> I did but still don't get it  I mean equity is just money investors has contributed if we are saying to increase equity aren't we saying that we are receiving more money from investors?








In the balance sheet, Equity comprises of a few items. 

One of them is Contributed Equity, i.e. capital that was put into the business by shareholders. ie. this is equity raise with the issuing of shares, either through dividend reinvestment or just printing new shares to raise cash.

The other is Retained Profit (or accum. losses). 

This is where, to my mind anyway as I wasn't paying attention in accounting 101, an increase in revenue eventually increases Equity (eveything else being equal). 

That is, the company makes more sales, more sales mean (usually) more profit; more profit mean no loss and retained earnings after paying dividends or special dividend (capital return).

So more revenue generally, but not always, increase equity in the sense that it eventually reaches the bottom line and profit is retained.


----------



## RandomInvestor (7 February 2017)

From what I can gather this link also helped me a bit :  http://finance.zacks.com/increases-stockholder-equity-3005.html  Ok so the company can decide with the money it made in revenue say $100 it can issue it as a dividend or retain the money. Or a bit of both, so if they retain the money it goes into retained earnings and if they give money to investors the stock holder equity goes up?


----------



## galumay (7 February 2017)

Why do you think that it increases shareholder's equity if it is paid out as dividends?


----------



## luutzu (7 February 2017)

RandomInvestor said:


> From what I can gather this link also helped me a bit :  http://finance.zacks.com/increases-stockholder-equity-3005.html  Ok so the company can decide with the money it made in revenue say $100 it can issue it as a dividend or retain the money. Or a bit of both, so if they retain the money it goes into retained earnings and if they give money to investors the stock holder equity goes up?








That statement above detail the movement from what Zack's refer to as Net Revenue (net profit, i.e. revenue after paying all expenses)... how earnings ends up contributing to Equity.

You're half right from what you're saying above... that when Net Profit are made, management decides to do, for sake of simplicity, two things: Retain it in the company; or Pay out in dividends; or a bit of both (ok, 3 things)...

The part of the year's net profit that is retained increases the Retained Earning account under the Equity section... The dividend that is paid out *does not* increases contributed equity; It is a form of capital return in this case. 

What increases Contributed Equity would be when new shares are issued and new equity is raised (contributed).


This is why it's important to look at the detail of where "equity" came from. And you're on the right track in asking it.

That is, a good business, depending on its age, ought to have constant or small Contributed Equity as part of its total Equity. But its Retained Earnings (shown in green below) should be rising, and rising with higher dividend payout (purple). 

If a company, say, keeps paying dividends but its RE is nought or stable with increasing Contributed Equity... it's a ponzi.

This is why, ahem, certain awesome software that takes the effort to dissect financial statements help investors make quick and fast sense of the business quality than just mere ratios and bottom line figures.


----------



## RandomInvestor (7 February 2017)

galumay said:


> Why do you think that it increases shareholder's equity if it is paid out as dividends?




Because it's the amount of money share holders have contributed and I thought for some reason since dividend is cash it increases.


----------



## galumay (7 February 2017)

So can you see why that is incorrect? 
Check the definition for Shareholders equity, 
Think about where dividends come from and where they go.


----------



## RandomInvestor (8 February 2017)

galumay said:


> So can you see why that is incorrect?
> Check the definition for Shareholders equity,
> Think about where dividends come from and where they go.



Yeah sorta. Don't dividends come from retained earnings? Or net income?


----------



## galumay (8 February 2017)

honestly, I give up. 

RandomInvestor, my point in asking questions back at you was to get you to try to think through and research so that you might arrive at some of the answers yourself. If everything that pops in your head requires someone to tell you the answer then you will never learn *how to learn* anything. 

ps. Think about what *Retained Earnings *are, then ask yourself if *Dividends *to investors could come from there.


----------



## RandomInvestor (8 February 2017)

galumay said:


> honestly, I give up.
> 
> RandomInvestor, my point in asking questions back at you was to get you to try to think through and research so that you might arrive at some of the answers yourself. If everything that pops in your head requires someone to tell you the answer then you will never learn *how to learn* anything.
> 
> ps. Think about what *Retained Earnings *are, then ask yourself if *Dividends *to investors could come from there.



Lol I had a feeling you might eventually you would not make a good teacher you wouldn't be able to deal with difficult students such as my self. I just have a hard time learning I have pretty much since I started school at least I'm trying.


----------



## RandomInvestor (8 February 2017)

Ok let's try this again I just woke up. Stock holders equity is the exact difference between total assets and total liabilities. So revenue increases that number In between correct? But since we said "exact difference" doesn't that mean assets or liabilities need to increase?


----------



## pixel (8 February 2017)

RandomInvestor said:


> Lol I had a feeling you might eventually you would not make a good teacher you wouldn't be able to deal with difficult students such as my self. I just have a hard time learning I have pretty much since I started school at least I'm trying.



Galumay has been the most patient of us all; abusing him won't make anyone else more inclined to provide further answers. *This isn't a school for special needs children.*
My final attempt to help you on your way: 
Search the Investopedia, e.g.: http://www.investopedia.com/terms/r/retainedearnings.asp
Take your time. Start at "A", work your way through to "Z"


----------



## RandomInvestor (8 February 2017)

pixel said:


> Galumay has been the most patient of us all; abusing him won't make anyone else more inclined to provide further answers. *This isn't a school for special needs children.*
> My final attempt to help you on your way:
> Search the Investopedia, e.g.: http://www.investopedia.com/terms/r/retainedearnings.asp
> Take your time. Start at "A", work your way through to "Z"




I didn't mean to abuse him. He has been sorta patient but I don't know if he understands I AM trying just having a hard time learning that is it. Don't think just because I don't understand it I have been waiting for you to provide me an answer.


----------



## RandomInvestor (8 February 2017)

I just looked at the video I know what stock holders equity and retained earnings is. I already knew that I just can't see the correlation why it would increase.


----------



## RandomInvestor (8 February 2017)

Bro I think I just cracked it! Maybe! So the stock holders equity has retained earnings. So if the share holders equity increases does that mean the assetshave increased? And the asset that increases is retained earnings? So that's why it increases?

Like retained earnings is an asset? And that's why the company total assets would increase thus making the number inbetween total assets and total liablities bigger?


----------



## Klogg (8 February 2017)

RandomInvestor said:


> I did but still don't get it  I mean equity is just money investors has contributed if we are saying to increase equity aren't we saying that we are receiving more money from investors?






RandomInvestor said:


> Lol *I had a feeling you might eventually you would not make a good teacher* you wouldn't be able to deal with difficult students such as my self. I just have a hard time learning I have pretty much since I started school at least I'm trying.




There's the problem, blaming the teacher.

Maybe there's some value in listening to what he's saying. Especially this part:
_"my point in asking questions back at you was to get you to try to think through and research so that you might arrive at some of the answers yourself"_


----------



## RandomInvestor (8 February 2017)

Klogg said:


> There's the problem, blaming the teacher.
> 
> Maybe there's some value in listening to what he's saying. Especially this part:
> _"my point in asking questions back at you was to get you to try to think through and research so that you might arrive at some of the answers yourself"_





Mate I read it alot of times I just don't get it. I don't see what I am doing wrong? I have done my research also.


----------



## RandomInvestor (8 February 2017)

One last thing when we say stock holders equity increased aren't we supposed to refer to a section like retained earnings? So revenue increases a "component" in stock holders equity? Now that makes sense. So if the company retains earnings it goes into the retained earnings section and this increases the share holders equity?


----------



## RandomInvestor (27 March 2017)

Hey guys question I am reading this book on financial statements and it shows where certain stuff would be enterered where. But one part I don't get is the retained earnings it gets increases by certain stuff like in this page it says  "lower retained earnings in the liabilities section of the balance sheet by 103,000 sales and marketing expenses. How is retained earnings lowered due to marketing expenses?


----------



## RandomInvestor (27 March 2017)

Ok so did a bit more research would this be why? Retained earnings is affected by any transaction that affects net income, so when net income is lower (or profit) does that mean due to the expenses there will be less profit? Thus less retained earnings?


----------



## RandomInvestor (15 April 2017)

Hey guys had a quick question I am evaluating Woolworths at the moment and notice something odd in the 2016 annual report consolidated profit and loss statement it says for revenue from the sale of goods and services that the number is 
	

		
			
		

		
	



	

		
			
		

		
	
  (this is for the year 2015) but now I move onto the 2015 annual report and the number is different it says 60,679.1. Why are they different? It's not just this figure its a lot of other stuff aswell.


----------



## luutzu (15 April 2017)

RandomInvestor said:


> Hey guys had a quick question I am evaluating Woolworths at the moment and notice something odd in the 2016 annual report consolidated profit and loss statement it says for revenue from the sale of goods and services that the number is
> 
> 
> 
> ...




Read the notes to that report.

Could be the figures in 2016 AR only include ongoing/continued operations. So it would exclude the Masters figures whereas last year's report's continued operations figured Masters is still an ongoing operation.


----------



## RandomInvestor (15 April 2017)

luutzu said:


> Read the notes to that report.
> 
> Could be the figures in 2016 AR only include ongoing/continued operations. So it would exclude the Masters figures whereas last year's report's continued operations figured Masters is still an ongoing operation.



Ah ok I had a feeling it had something to do with different time? Is this right?


----------



## luutzu (15 April 2017)

RandomInvestor said:


> Ah ok I had a feeling it had something to do with different time? Is this right?




You mean 53 vs 52 trading weeks?

Maybe. Can't remember when they had a once every four year [?] 53 trading week. But possible.

Though I think the redefinition of "continuing operations" makes more sense.

1. They just sold off Masters, so it's more appropriate to measure sales without Masters last year with this year's [2016] being without Masters.

2. It doesn't look as bad. i.e. Sales for 2015 was $60,868.4M [2015 AR]; sales this year as reportd in 2016AR was $58,553.0M

If you can rejig 2015's sales figure to $59,271.4M... the decline in sales doesn't seem as bad. 

Put it under "continuing operations" and you might get your bonuses


----------



## RandomInvestor (15 April 2017)

luutzu said:


> You mean 53 vs 52 trading weeks?
> 
> Maybe. Can't remember when they had a once every four year [?] 53 trading week. But possible.
> 
> ...



Ah ok cheers.


----------



## RandomInvestor (20 April 2017)

Hey guys I am having a question I am reading the 2014 annual report of Woolworths and some things are confusing me are these things the same?






I assume this one is different just because it includes assets but not sure if there are like hidden things if that makes sense. I believe its always supposed to be clearly stated.




Also there is this statement makes no sense to me " Dividends paid by Woolworths are used to repay the loan (after payment of a portion of the dividend to the employee to cover any tax liabilities)."

Ok so it first says "Dividends paid by Woolworths" so that means that Woolworths pays the dividend to the investor correct? But how does that make sense for them to repay the loan if they give the money to investors unless they are referring to money that they retain, but no mention of that here.

And this one here:




EDIT:

This one aswell:

Assets held for sale
Assets classified as held for sale


----------



## luutzu (20 April 2017)

RandomInvestor said:


> Hey guys I am having a question I am reading the 2014 annual report of Woolworths and some things are confusing me are these things the same?
> 
> View attachment 70757
> 
> ...





They are quite literal. i.e. they mean what they sound like.

I haven't read the annual reports you got those from, but...

external borrowing mean outside lender, as opposed to perhaps borrowings from across division, or management or major shareholders. For companies that does not differentiate, borrowing tend to mean from outside third parties.

PPE I tend to define as PPE that's no longer needed; too worn out and so they flogged it off on eBay or something.

Assets held for sales are usually bigger ticket items they usually won't sell off but are now putting up for sale to get out of the business/division.

Tenants are renters; customers are shoppers. WOW has pubs and motels or property they also rented? Those are tenants.

Investments tend to mean short term, financial assets like stock market holdings or other financial securities. A business is them buying another business.


----------



## RandomInvestor (20 April 2017)

luutzu said:


> They are quite literal. i.e. they mean what they sound like.
> 
> I haven't read the annual reports you got those from, but...
> 
> ...



 ah ok thanks I get that external means outside but it just says " proceeds from borrowings" doesn't say external I assume it is external because you can't borrow from your self?


----------



## luutzu (20 April 2017)

RandomInvestor said:


> ah ok thanks I get that external means outside but it just says " proceeds from borrowings" doesn't say external I assume it is external because you can't borrow from your self?




Most borrowings are external, but they can borrow from "related entities" or sugar daddies.


----------



## RandomInvestor (21 April 2017)

luutzu said:


> Most borrowings are external, but they can borrow from "related entities" or sugar daddies.



Ah ok.


----------



## MARKETWINNER (23 April 2017)

http://www.dummies.com/business/accounting/the-basics-of-double-entry-bookkeeping/


----------



## RandomInvestor (25 April 2017)

MARKETWINNER said:


> http://www.dummies.com/business/accounting/the-basics-of-double-entry-bookkeeping/



Whats that got to do with my question? I know the double entry book keeping but something like this I can't google. Am I missing something?


----------



## RandomInvestor (25 April 2017)

Hey guys I had a quick question just wanted to confirm something so I am reading Notes to the consolidated financial statements and it says "Basic earnings per share (cents per share) – Continuing operations" does continuing operations include subsidiaries? I'm guessing it does because it says consolidated above?


----------



## MARKETWINNER (25 April 2017)

I am not an expert in Accounting. Simply, consolidate accounts represent combined accounts of both parent (main company) and subsidiaries. In other words *consolidated financial statements* are the combined financial statements of a company and all of its subsidiaries, divisions, or sub organizations.

http://smallbusiness.chron.com/diff...idual-company-financial-statements-73171.html


----------



## RandomInvestor (5 May 2017)

Hey guys I am analyzing a company atm called WAM Capital great company btw, anyways in their annual report it says Performance fee payable I get what it means "A performance is a payment made to a fund manager for generating positive returns" but is this saying that the customers in wam capital in total have paid this much? Otherwise if we look it from the company stand point its like they are paying someone to generate their returns not them doing it them selves, I am a bit confused.

Also another one  under
Cash flow information

It says 
"Fair value gains on financial assets" but reports a negative number does this mean they made a loss? Or is it cash outflow? But how is that a gain then?


----------



## Klogg (5 May 2017)

RandomInvestor said:


> Hey guys I am analyzing a company atm called WAM Capital great company btw, anyways in their annual report it says Performance fee payable I get what it means "A performance is a payment made to a fund manager for generating positive returns" but is this saying that the customers in wam capital in total have paid this much? Otherwise if we look it from the company stand point its like they are paying someone to generate their returns not them doing it them selves, I am a bit confused.
> 
> Also another one  under
> Cash flow information
> ...




"Fair value gain on financial assets" is basically them revaluing their assets to market value. This means that the assets that they can get market quotes for (or other valuations) went down in value during this period, given it's a negative number.

WAM are fund managers, so this is their bread and butter. That said, everyone has a bad spell, even those as good as WAM.


----------



## RandomInvestor (5 May 2017)

Klogg said:


> "Fair value gain on financial assets" is basically them revaluing their assets to market value. This means that the assets that they can get market quotes for (or other valuations) went down in value during this period, given it's a negative number.
> 
> WAM are fund managers, so this is their bread and butter. That said, everyone has a bad spell, even those as good as WAM.



Ah I see thanks man. Also one thing I still haven't figured out how come on one companies financial statement in their statement of comprehensive income for example it shows for example "Brokerage expense on share purchases" but on another annual report it doesn't?


----------



## RandomInvestor (5 May 2017)

Never mind turns out that I was looking at 2 different things lol. But I saw this on Woolworths, still curious though


----------



## luutzu (5 May 2017)

RandomInvestor said:


> Hey guys I am analyzing a company atm called WAM Capital great company btw, anyways in their annual report it says Performance fee payable I get what it means "A performance is a payment made to a fund manager for generating positive returns" but is this saying that the customers in wam capital in total have paid this much? Otherwise if we look it from the company stand point its like they are paying someone to generate their returns not them doing it them selves, I am a bit confused.
> 
> Also another one  under
> Cash flow information
> ...




Correct me if I am wrong, but my understanding of listed investment company like WAM is they basically buy and own stocks in other companies and assets. So an investor in WAM is basically buying a share in WAM's share on those other companies/assets.

You got to be careful when looking into these kind of company. Probably best to stay away from them as you're starting out. Once you're experienced and know enough, you'd probably stay away too unless you can be asked to study all the holdings their various trusts/sub holds.

To more or less accurately value these kind of company, you have to also look into each and every one of the holdings - i.e. you have to study all the companies and assets WAM holds. See if those are any good; see if WAM's take on their "market value" are reasonable... not that WAM would lie, but that the market price they take as each of those company's value may or may not be reasonable - you won't know until you've study each one of them.

So unless you can know, say, WAM's holdings in Woolworth is actually worth X... or you don't mind taking whatever the market value WOW at on WAM's report date as true value.

Since most of us don't have the time or the patience to look through these holdings.. I mean if we can or could, we'd go directly to them anyway right? So you're practically betting on the talent and ability of WAM's analysts and managers, which might or might not be good. If it's good then, is it still good now?


----------



## RandomInvestor (5 May 2017)

Also this is interesting on 2014 report it shows
Gains from purchase of subsidiary with the amount of $0 but why isn't it showing this component on year 2015 annual report?


luutzu said:


> Correct me if I am wrong, but my understanding of listed investment company like WAM is they basically buy and own stocks in other companies and assets. So an investor in WAM is basically buying a share in WAM's share on those other companies/assets.
> 
> You got to be careful when looking into these kind of company. Probably best to stay away from them as you're starting out. Once you're experienced and know enough, you'd probably stay away too unless you can be asked to study all the holdings their various trusts/sub holds.
> 
> ...




I think this is a top companies all top qualities and been outperforming the market for over 10 years. Their investment strategy is very sound. Major risk would be though change in leadership because then research methods and **** might change. As long as the people currently running it are there I think its a good investment. Unless of course someone better comes along.

Also I would definitely not go through all of their holdings too much work this is the sort of company which I sorta would have faith in that will do well bit of speculation I guess lol. At the end of the day they look for certain things in companies for example high roe, low debt etc and will invest in companies only if they meet this criteria. So instead of me doing all that work they are doing so I don't see point in it.


----------



## luutzu (5 May 2017)

RandomInvestor said:


> Also this is interesting on 2014 report it shows
> Gains from purchase of subsidiary with the amount of $0 but why isn't it showing this component on year 2015 annual report?
> 
> 
> ...




It might very well be a great company. But no one can know its current value for sure unless they look into each of the holdings' books to know its value, then work back to consolidate and average out WAM's holdings etc.

Track record and Geoff Wilson and his team's ability... maybe they're good. As a general rule though, might want to follow Buffett's advise and buy into a business any idiot can run. The business lasts longer than any CEO; and a great business can stand a couple of idiot's mistakes when one or two will eventually run it.

Just my two cents man.


----------



## RandomInvestor (6 May 2017)

luutzu said:


> It might very well be a great company. But no one can know its current value for sure unless they look into each of the holdings' books to know its value, then work back to consolidate and average out WAM's holdings etc.
> 
> Track record and Geoff Wilson and his team's ability... maybe they're good. As a general rule though, might want to follow Buffett's advise and buy into a business any idiot can run. The business lasts longer than any CEO; and a great business can stand a couple of idiot's mistakes when one or two will eventually run it.
> 
> Just my two cents man.



Ah ok when you say look at their holdings are you saying to do a full indepth review of those companies?


----------



## Klogg (6 May 2017)

RandomInvestor said:


> Ah ok when you say look at their holdings are you saying to do a full indepth review of those companies?




If you're looking to find value yourself and not rely on other fund managers, then the only benefit you can get from an LIC (listed investment company) is to figure out the value of their underlying assets (e.g. market value of each of their holdings), which is usually outlined in their NTA anyway. That way, you can buy assets at a discount (sometimes)

As an example, TOP trades at a small discount to Net Tangible assets. That's not to say it's a bargain, but it may or may not be an opportunity for further investigation.

Then you also have the chance that they trade below NTA AND that their assets are undervalued. In that case, you get the revaluation of underlying assets and confidence in the fund manager grows, so they trade at a premium to NTA. Not common, but it's possible.


Another situation worth bringing to light - PMV hold a large stake in Breville (BRG). They list this at their purchase price, rather than adjusting it to market value. If you crudely valued PMV on a simple P/E ratio, it looks pricey. But after adjusting for BRG and their cash holdings, it's a different story.
Anyway, just wanted to point out that it's not just LICs that have marketable securities on their balance sheets.


----------



## luutzu (6 May 2017)

RandomInvestor said:


> Ah ok when you say look at their holdings are you saying to do a full indepth review of those companies?




It would be a good idea, I think.

When we look at a company's financials, we try to figure out the underlying value of  assets. For certain businesses and with different calibre of managerial luck and talent, asset size might not matter, it's how you use it  i.e. some business are capital intensive and return at x is quite reasonable; some business does not need much capital to earn quite well; some have massive amount of capital invested in it, but earnings are currently poor because... say, bad management, dying industry, suffering a downturn.

Reading the financials give a pretty good idea of what's what with the company; also gain some insight into its probably future performance.

So when you analyse a company that own a minor fraction of a bunch of other companies, like WAM's various LICs, to have a sensible idea of what it's worth require you to know each and everyone of its holdings, or at least a good idea of the significant ones.

If WAM pay dividends, where are those dividends coming from? The dividends of its holdings? I'd imagine that's the only way it can pay dividends... unless it's one open-ended fund of some sort that take new investor's money in and... 

In short, it's a lot tougher to value these kind of businesses. That and you got to know its structure, where and how does it pay its dividends is a biggie. Know how it measure its performance.

As Buffett says, stick to companies you can understand. To understand LICs mean you need to understand all its holdings... which is possible, but not as easy as simply looking at WAM's reported financials.


----------



## RandomInvestor (8 May 2017)

Klogg said:


> If you're looking to find value yourself and not rely on other fund managers, then the only benefit you can get from an LIC (listed investment company) is to figure out the value of their underlying assets (e.g. market value of each of their holdings), which is usually outlined in their NTA anyway. That way, you can buy assets at a discount (sometimes)
> 
> As an example, TOP trades at a small discount to Net Tangible assets. That's not to say it's a bargain, but it may or may not be an opportunity for further investigation.
> 
> ...



Yeah the nta is included in their annual report but not really sure what they mean't by it.


----------



## RandomInvestor (8 May 2017)

luutzu said:


> It would be a good idea, I think.
> 
> When we look at a company's financials, we try to figure out the underlying value of  assets. For certain businesses and with different calibre of managerial luck and talent, asset size might not matter, it's how you use it  i.e. some business are capital intensive and return at x is quite reasonable; some business does not need much capital to earn quite well; some have massive amount of capital invested in it, but earnings are currently poor because... say, bad management, dying industry, suffering a downturn.
> 
> ...



Ah ok thanks.


----------



## Klogg (8 May 2017)

RandomInvestor said:


> Yeah the nta is included in their annual report but not really sure what they mean't by it.




NTA stands for "Net Tangible Assets". It's the dollar value of the assets that they own, net of any debt.

Generally for listed investment companies, they value these at market value as we described earlier, by using the "Fair value adjustment" on the Income Statement. 

Also a standard practice - they quote NTA on a per share basis. This basically means that each share has this value of assets behind it. For example, if the company was worth $2m, 1m shares on issue and they had $1m in assets, you'd get:

Share price = market value / number of shares
= $2m / 1m
= $2 per share

NTA per share = Net Tangible Assets (in total) / number of shares
= $1m / 1m
= $1 of net tangible assets per share


I should also mention the 'tangible' part. When they say this, they generally mean not including goodwill, brand names, customer contracts, software, or anything else that can be described as an intangible asset.


----------



## RandomInvestor (8 May 2017)

Klogg said:


> NTA stands for "Net Tangible Assets". It's the dollar value of the assets that they own, net of any debt.
> 
> Generally for listed investment companies, they value these at market value as we described earlier, by using the "Fair value adjustment" on the Income Statement.
> 
> ...



Ah ok thanks man.


----------



## RandomInvestor (8 May 2017)

Hey I wanted to ask as I am going through wam capital I notice on their 2016 annual report for example it shows  "statement of comprehensive income" but on 2013 it says "consolidated statement of comprehensive income" how can I extract it so its just from 1 entity? because all my data is going to be mixed otherwise.


----------



## lukeamac (9 May 2017)

New member, not sure of the power of this to me currently, but in the near future see this being extremely helpful to helping me remain objective in my trading. Thanks for creating this for us to use. 



luutzu said:


> Shameless plug ahead:
> 
> www.danginvestor.com
> 
> ...


----------



## luutzu (9 May 2017)

lukeamac said:


> New member, not sure of the power of this to me currently, but in the near future see this being extremely helpful to helping me remain objective in my trading. Thanks for creating this for us to use.




You welcome Lukeamac. But I don't think it's suitable for daytrading if by that we mean trading in and out in days or weeks. 

The app will get you to really know the business, and once you know it well enough, there really is no reason why you can't take advantage of big wild swings about your estimated value range.

The software does take a lot of getting used to. It's not one of those where you open the packet and know exactly how it works. So let me know if you have any questions about anything.

Thanks


----------



## RandomInvestor (10 May 2017)

Hey guys question I just realized A2milk has NO income statement except for the year 2010 how the hell is this possible? There is only comprehensive income.


----------



## RandomInvestor (10 May 2017)

Also having another problem trying to get return on assets ratio I did net income / total assets and I get these figures for these years:

2016 : 0.14

2015 : -0.02

2014 : 1.30

2013 : 0.05

2012 : 0.09

2011 : 0.06

I guess I am supposed to multiply it by 100 at the end? Even so all these websites are saying A2milk has a ROA of around 20% in year 2016. If I multiply by 100 I would get 14 don't know which one is correct.


----------



## luutzu (10 May 2017)

RandomInvestor said:


> Also having another problem trying to get return on assets ratio I did net income / total assets and I get these figures for these years:
> 
> 2016 : 0.14
> 
> ...




Yea you multiply 100 to get a %. That format you have there is a ratio.

When in doubt, go for the lower figure. i.e. be conservative. 

Returns, earnings etc. are different depending on what was used and how they're defined. So earnings... does the database define it as net profit [i.e. after tax, interest ect.], net profit as reported or net profit from continued operation only. 


Was reading a bio on Rupert Murdoch and his News Corporation. One of the thing the authors pointed out was that, quoting some accounting professor, all earnings/profits are opinions. i.e. the judgement, assumptions of management regarding revenue being paid or not, what's an expense and what's an investment deferred, what's consolidated etc. etc.

These are often done by managers to fool both the investor, the taxman and their compensation committee. Hence, also look at its statement of cash flows, pay attention to the operating cash.


----------



## RandomInvestor (11 May 2017)

Hey guys how do you find the equity per share there is almost nothing about it on Google. This is only useful link I found:

http://www.naxs.se/en/private-equity/Glossary/eget-kapital-per-aktie/

The other closest thing is Book value per share not sure if its same thing. I am asking because I am reading Roger Montgomeries Value able book looking at the intrinsic value formula and it says get the equity per share but can't find anything on it. What I did (not sure if its correct) is get the total equity of Jb hi fi for example which is 872.8m and divide it by total outstanding shares which is 114.42 gives me 7.62. Not sure if this is correct, also the book is says get the shares on issue not shares outstanding but I can't find anything about shares on issue either, is this same thing? 

Forgot to include this is the resource I got the equity from

https://au.investing.com/equities/jb-hi-fi-balance-sheet not sure if I included too many things. Like if I was just supposed to add the common stock not the entire equity. Thanks


----------



## RandomInvestor (17 May 2017)

Hey guys I have a question I am reading a book called its earnings that count as it talks about making a defensive income statement and a enterprising income statement and it says this:

In 2002 Wrigley spent $216.9 million on additions to property, plant, and equipment. Its depreciation charge, meanwhile, was $85.6 million. Thus, Wrigley made a $131.3 million investment in fixed capital. This use of cash is an expense in the defensive income statement.

For a2milk is the correct steps to getting this data?

First this part "216.9 million on additions to property, plant, and equipment" is that this part in a2milk cash flow statement? "Payment for property, plant & equipment" then it says"Its depreciation charge, meanwhile, was $85.6 million" does this relate to this item on the balance sheet? "Depreciation/amortisation" But its confusing because page 39 on the 2016 annual report here: https://thea2milkcompany.com/wp-content/uploads/A2ML0029-a2-2016-AR_Spreads.pdf there are 2 depreciation values. One of left and right. Then for the final part "Wrigley made a $131.3 million investment in fixed capital" I can't find anything relating to fixed capital except for this "Other intangible assets" this is all I could find.


----------



## RandomInvestor (17 May 2017)

I got Wriggleys 2002 annual report here: http://media.corporate-ir.net/media_files/irol/92/92701/reports/annual_2002.pdf page 19 shows  "Additions to Property, Plant and Equipment" then its same as CAPEX I believe. But A2milk doesn't show this it says they have none so I guess I can't build a defensive income statement for this company?


----------



## luutzu (18 May 2017)

RandomInvestor said:


> Hey guys how do you find the equity per share there is almost nothing about it on Google. This is only useful link I found:
> 
> http://www.naxs.se/en/private-equity/Glossary/eget-kapital-per-aktie/
> 
> ...




So how  and where do I send you my account details for payment?

Payment first, answer after?


----------



## RandomInvestor (18 May 2017)

luutzu said:


> So how  and where do I send you my account details for payment?
> 
> Payment first, answer after?



huh?


----------



## luutzu (18 May 2017)

RandomInvestor said:


> huh?




Joke. In reference to you seeking a tutor of some sort.


----------



## RandomInvestor (18 May 2017)

luutzu said:


> Joke. In reference to you seeking a tutor of some sort.




Wrong thread.


----------

