Going Fundamental: Balance Sheet what?

source: http://live.regnumchristi.org

I know you might ask that to me. So I might as well dedicate a post regarding this document which usually fits in a piece of paper but has a very very important information about the company you might be thinking to invest in.

Balance Sheet is one of the set of Financial Statements I discussed in my previous post What are Financial Statements?

In order for us to fully understand the value of information we get in a Balance Sheet let me share with an equation called the Balance Sheet Equation:

Basically the above equation tells us about Balance Sheet. A Balance Sheet is a list of what the company owns, owes, and the net balance which it could claim as the real value that it owns.

It has 3 components:

ASSET are resources owned by a company and which have future economic value that can be measured and can be expressed in dollars. Examples include cash, investments, accounts receivable, inventory, supplies, land, buildings,equipment, and vehicles.

LIABILITY are obligations of a company or organization. Amounts owed to lenders and suppliers. Liabilities often have the word "payable" in the account title. Liabilities also include amounts received in advance for a future sale or for a future service to be performed

CAPITAL/EQUITY is the net amount invested by the owners or the amount that is attributable to the owners or in other words the owners' part in the whole company.

source: http://accountingquickbooksexperiences.blogspot.com/

Now why do we have to know these things about company?

One thing an investor needs to know using these information is the ability of the company to continue doing business which accountants term as "GOING CONCERN". No sane investor would put his or her money on a company that has no certainty of doing further business. If company has no capability to continue doing business it follows that its ability to generate income is already questionable.

Assets and Liabilities are further sub-divided to current and non-current(sometimes it is called long term). These sub-division allows us to compute ratios that will help us evaluate the company's ability to stay afloat in the short run(basically within a year) and its ability to further expand.


Some ratios derived from the Balance Sheet are the following:

Current Ratio is computed by dividing Current Assets by Current Liabilities. It indicates the capability of the company to pay currently maturing liabilities. 

Debt to Equity Ratio which is computed by dividing Liabilities by Equity indicates the leverage level of the company. A company with a high Debt-Equity Ratio is high risk because it shows that the company is more of owned by lenders rather than investors. It also post a risk of insolvency because the company is heavily indebted. 

Investing word of the day: Leverage

 source: http://www.etftrends.com

Hi it's been quite awhile since I posted some investing words to think about.

So lets start with LEVERAGE.

Investopedia.com defines leverage as :

1. The use of various financial instruments or borrowed capital, such

    as margin, to increase the potential return of an investment.

2. The amount of debt used to finance a firm's assets. A firm with

    significantly more debt than equity is considered to be highly 

    leveraged.

Leverage is most commonly used in real estate transactions through the use of mortgages to purchase a home. 

So basically what does this word mean to us? 

Well leverage is taking advantage of available means to increase profit. To make it simple let's use OPM(Other People's Money). 

For example since Christmas season is around let say you wanted to sell those beautiful parols but right now you don't have enough capital to buy such. So you decided to find the manufacturer to make sure you get it at the cheapest price. So you went to Pampanga and was able to find the manufacturer. 

But even though its cheap at the manufacturer you still don't have enough capital of your own so you ask your brothers and sisters to lend you money. And so you got the money and got the parols. Displayed the parols in your house which is along the busiest road in your subdivision and by week's end you sold all the parols.

So where is leverage there? That is where OPM(Other People's Money) come. Well you were able to make profit even without you shelling out cash to finance your purchase.

By that you were able to increase you earnings by 100% if you fully financed it with borrowed money.


The same principle is used in Larry Gamboa's book Think Rich Pinoy(an adaptation to Robert Kiyosaki's principles in the Philippine setting).

                            source:http://thinkrichpinoy.com

source: http://fireballbooks.com/ThinkRichPinoy/

Larry and his partners scout banks for foreclosed properties that are auctioned at insanely low price. With a required deposit of only Php 25,000.00( this is the minimum I think) they were able to join the auction of foreclosed properties and the bank will even let you pay the property at installment basis.

So Larry Gamboa and company are able to leverage on their buy and sell project because it seems that they didn't even empty their pockets to fund the project because they borrowed the fund they need to the same bank who  sold the property. 

That is what we call leverage or in our Pinoy lingo OPM ;)   or better yet DOING MORE WITH LESS

source: http://www.healthy-holistic-living.com

Investing word of the day: Leverage

 source: http://www.etftrends.com

Hi it's been quite awhile since I posted some investing words to think about.

So lets start with LEVERAGE.

Investopedia.com defines leverage as :

1. The use of various financial instruments or borrowed capital, such

    as margin, to increase the potential return of an investment.

2. The amount of debt used to finance a firm's assets. A firm with

    significantly more debt than equity is considered to be highly 

    leveraged.

Leverage is most commonly used in real estate transactions through the use of mortgages to purchase a home. 

So basically what does this word mean to us? 

Well leverage is taking advantage of available means to increase profit. To make it simple let's use OPM(Other People's Money). 

For example since Christmas season is around let say you wanted to sell those beautiful parols but right now you don't have enough capital to buy such. So you decided to find the manufacturer to make sure you get it at the cheapest price. So you went to Pampanga and was able to find the manufacturer. 

But even though its cheap at the manufacturer you still don't have enough capital of your own so you ask your brothers and sisters to lend you money. And so you got the money and got the parols. Displayed the parols in your house which is along the busiest road in your subdivision and by week's end you sold all the parols.

So where is leverage there? That is where OPM(Other People's Money) come. Well you were able to make profit even without you shelling out cash to finance your purchase.

By that you were able to increase you earnings by 100% if you fully financed it with borrowed money.


The same principle is used in Larry Gamboa's book Think Rich Pinoy(an adaptation to Robert Kiyosaki's principles in the Philippine setting).

                            source:http://thinkrichpinoy.com

source: http://fireballbooks.com/ThinkRichPinoy/

Larry and his partners scout banks for foreclosed properties that are auctioned at insanely low price. With a required deposit of only Php 25,000.00( this is the minimum I think) they were able to join the auction of foreclosed properties and the bank will even let you pay the property at installment basis.

So Larry Gamboa and company are able to leverage on their buy and sell project because it seems that they didn't even empty their pockets to fund the project because they borrowed the fund they need to the same bank who  sold the property. 

That is what we call leverage or in our Pinoy lingo OPM ;)   or better yet DOING MORE WITH LESS

source: http://www.healthy-holistic-living.com