Financial Statements are the records that outline the financial activities of a business, an individual or any other entity. Financial statements are meant to present the financial information of the entity in question as clearly and concisely as possible for both the entity and for readers. Financial statements for businesses usually include: income statements, balance sheet, statements of retained earnings and cash flows, as well as other possible statements.
A balance sheet, also known as a "statement of financial position," reveals a company's assets, liabilities and owners' equity (net worth). The balance sheet, together with the income statement and cash flow statement, make up the cornerstone of any company's financial statements. If you are a shareholder of a company, it is important that you understand how the balance sheet is structured, how to analyze it and how to read it.
The bottom line is a company's income after all expenses have been deducted from revenues which is profit gained.These expenses include interest charges paid on loans, general and administrative costs and income taxes. A company's bottom line can also be referred to as net earnings or net profits. The top line refers to a company's gross sales or revenues. Therefore, when people comment on a company's "top-line growth", they are making reference to an increase in gross sales or revenues.
P/E Ratio:
Price-Earnings Ratio = Market Value per Share / Earnings per Share (EPS)
The P/E is sometimes referred to as the "multiple", because it shows how much investors are willing to pay per dollar of earnings. If a company were currently trading at a multiple (P/E) of 20, the interpretation is that an investor is willing to pay $20 for $1 of current earnings. It's usually more useful to compare the P/E ratios of one company to other companies in the same industry, to the market in general or against the company's own historical P/E. It would not be useful for investors using the P/E ratio as a basis for their investment to compare the P/E of a technology company (high P/E) to a utility company (low P/E) as each industry has much different growth prospects. example: if a company is currently trading at $43 a share and earnings over the last 12 months were $1.95 per share, the P/E ratio for the stock would be 22.05 ($43/$1.95).
Things to Remember:
ref:
Reading balance sheet -
P/E Ratio -
A balance sheet, also known as a "statement of financial position," reveals a company's assets, liabilities and owners' equity (net worth). The balance sheet, together with the income statement and cash flow statement, make up the cornerstone of any company's financial statements. If you are a shareholder of a company, it is important that you understand how the balance sheet is structured, how to analyze it and how to read it.
The bottom line is a company's income after all expenses have been deducted from revenues which is profit gained.These expenses include interest charges paid on loans, general and administrative costs and income taxes. A company's bottom line can also be referred to as net earnings or net profits. The top line refers to a company's gross sales or revenues. Therefore, when people comment on a company's "top-line growth", they are making reference to an increase in gross sales or revenues.
P/E Ratio:
Price-Earnings Ratio = Market Value per Share / Earnings per Share (EPS)
The P/E is sometimes referred to as the "multiple", because it shows how much investors are willing to pay per dollar of earnings. If a company were currently trading at a multiple (P/E) of 20, the interpretation is that an investor is willing to pay $20 for $1 of current earnings. It's usually more useful to compare the P/E ratios of one company to other companies in the same industry, to the market in general or against the company's own historical P/E. It would not be useful for investors using the P/E ratio as a basis for their investment to compare the P/E of a technology company (high P/E) to a utility company (low P/E) as each industry has much different growth prospects. example: if a company is currently trading at $43 a share and earnings over the last 12 months were $1.95 per share, the P/E ratio for the stock would be 22.05 ($43/$1.95).
Things to Remember:
- Generally a high P/E ratio means that investors are anticipating higher growth in the future
- The average market P/E ratio is 20-25 times earnings.
- The P/E ratio can use estimated earnings to get the forward looking P/E ratio.
- Companies that are losing money do not have a P/E ratio.
Various interpretations of a particular P/E ratio are possible, and the historical table below is just indicative and cannot be a guide, as current P/E ratios should be compared to current real interest rates (see Fed model):
| N/A | A company with no earnings has an undefined P/E ratio. By convention, companies with losses (negative earnings) are usually treated as having an undefined P/E ratio, even though a negative P/E ratio can be mathematically determined. |
|---|---|
| 0–10 | Either the stock is undervalued, or the company's earnings are thought to be in decline. Alternatively, current earnings may be substantially above historic trends or the company may have profited from selling assets. |
| 10–17 | For many companies a P/E ratio in this range may be considered fair value. |
| 17–25 | Either the stock is overvalued or the company's earnings have increased since the last earnings figure was published. The stock may also be a growth stock with earnings expected to increase substantially in the future. |
| 25+ | A company whose shares have a very high P/E may have high expected future growth in earnings, or this year's earnings may be considered exceptionally low, or the stock may be the subject of a speculative bubble. |
ref:
Reading balance sheet -
- http://www.investopedia.com/articles/04/031004.asp
- http://www.anderson.ucla.edu/faculty/dick.rumelt/Docs/Notes/101-ReadsingB2.pdf
P/E Ratio -
