Course link: Udemy - Stock Market Investing for Beginners

Reading a Financial Statement

Reference

Quick guide to understanding a Balance Sheet: OANDA - Balance Sheet
Quick guide to understanding 10-K and 10-Q forms: OANDA - 10-K and 10-Q Forms

Now comes the part I was most excited to learn: Financial Statements.

The course gave a clear direction on reading financial statements, focusing mainly on these three: Balance Sheet, Income Statement, and Cash Flow Statement.

• Balance Sheet shows the company’s Assets and Liabilities, helping us see if the company has enough assets to cover its debts.
• Income Statement focuses on the company’s Revenue and Expenses, giving insights into how the company earns and spends money.
• Cash Flow Statement shows the cash Inflow and Outflow, helping assess if the company has enough cash to support its operations or expand further.

Based on these three statements, this is how I understand “good financials”:

• Assets > Liabilities → Can the company pay off its debts? (Less likely to suddenly bankrupt or run out of cash)
• Revenue growth → Business expanding or strategy working or not (Money doesn’t magically grow by itself)
• Stable cash inflow → Can the company sustain its daily operations? (Can pay staff salary on time or not?)

Now, I can confidently say I know how to read financial statements to analyze a company’s financial health. For more experienced investors, they can even estimate the company’s Intrinsic Value and profit from their investments. The course also introduced some analysis models, like Discounted Cash Flow (DCF) and Price-to-Earnings (P/E) Ratio. But hor, for now, I’m not very sensitive to these numbers, so I won’t dive too deep into that.

Self-assignment

After finishing this chapter, I was really excited because I finally learned how to read financial statements—something I’ve always wanted to master. I even gave myself a small task: create a personal financial statement.

I’m not one who regularly tracks expenses; I usually just rely on memory to keep track of how much I’ve spent each month. But now that I’ve learned this skill, I’m eager to analyze my own financial situation, like an investor reviewing a company, and see if there’s anything I can improve.

My personal financial statement also consists of three parts:

• Balance Sheet: Listing my Assets and Liabilities

  • Note: Balance sheet focuses on current assets and liabilities
  • I don’t have much debt, so I only listed my current credit card balances as liabilities
  • CPF is also considered an asset, and I listed each of the three accounts separately
  • Investment assets are included too, along with unrealized gains/losses

• Income Statement: Focusing on my actual Revenue and Expenses

  • Note: Only record “confirmed” income and expenses
  • For salary, I recorded the full amount. Employer CPF Contribution is listed as income, while Employee CPF Contribution is listed as an expense.
  • Insurance payments and taxes are recorded as expenses
  • Buying stocks isn’t listed here, as it’s a change in assets
  • Selling stocks, when profits or losses are realized, will be listed in the income statement

• Cash Flow Statement: Showing daily cash inflow and cash outflow, pretty much like tracking expenses

  • It’s like seeing how you spend the cash in your wallet each month or year
  • I categorized it into: daily activities cash flow (living expenses), investing activities cash flow (stocks, funds), and operating activities cash flow (insurance, CPF)

When I started doing this, I realized there were so many items I didn’t know how to categorize, and some even surprised me, like, “Eh, got this amount meh?” Haha! But once completed, I found myself viewing each expense more objectively, analyzing my financial activities just like an investor. It’s actually quite fun to review yourself like you’re running a company!