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Importance of the proper understanding of a balance sheet: A balance sheet along withits siblings-Profit and loss Account and statement of cash flows-form the triumvirate of all company Annual Reports.The information derived from such documents generally persuades or dissuades prospective investors or vendors who are either looking to park their funds in some company in any of the forms (instruments) that is available to them or wish to sell their services or products to it.As mentioned before,the balance sheet is an important source of information.The balance sheet contains several items and statements within it.A proper understanding of the information therin is required. The popular way of assessing a company is by looking at the companiy's ability to grow various flavours of earnings-operating earnings,pretax earnings,net income and earnings per share.However,this is not the only way to determine if there is real value in a company's stock.A company's real earnings are the earnings that make it from the Consolidated Statement of earnings to the balance sheet as a liquid asset. Shareholder value is derived from liquid assets -those that can easily be converted to cash.A company's value is determined by how much in the way of liquid assets it can accumulate.There are two ways to think about this. The first is look atterminal value, Which assumes for the sake of calculating potential return,that at some future point a company will close down its operations and turn everything in to cash,giving the money to shareholders.The second is to look at where tangible shareholder value comes from-returns on invested capital generated by the company's operations.If a company has excess liquid assets that it does not need,it can deploy those assets in two ways to benefit to shareholders-dividents and stock buybacks. Knowing what is on the balance is crucial to understanding whether or not the company you are investing in is capable of generating real value for shareholders.It is the balnce sheet that can tell you if a company has enough money to continue to fund its own growth or whether it is is going to take on dept,issue dept,or issue more stock in order to keep its wheel running.Does a company have too much inventory?Is a company collecting money from its customers in a resonable amount of time?It is the balance sheet ,with the listing of all the assets and liabilites of a company,that can tell you all of this; atleast,at first glance. Components of a balance sheet-breif outline Current Assets The first major component of the balance sheet are current Assets,which are assets that a company has its disposal,and which are assets that a company has its disposal,and which can be easily converted into cash within one operating cycle(an operating cycle is the time that it takes to sell a product and collect cash from the sale.It can last anywhere from 30 to 60 to 180 days). Current assets are important because it is from current assets that a company funds its ongoing,day-to-day operations.If there is a short fall in current assets,then the company is going to have to dig around to find some other form of short-term funding,which normally results in interest payments or dilution of shareholders value through issuance of more shares of stock.There are five main kinds of current assets-Cash & Equivalents,Short and Long term Investements,Accounts receivable,Inventories and Prepaid Expences. Cash & Equivalents are assets that are money in the bank or something equivalent,like bearer bonds,money market funds etc. Cash & Equivalents,are completely liquid assets,and thus should get special respect from shareholders.This is the money that a company could immediately mail to you in the form of a large divident if iot is not planning on investing it.This is the money that the company could use to buy back stock,and thus enhance the value of the shares that you own. Short-Term Investments are a step above cash and equivalents.These normally come in to play when a colmpany has cash in hand and some of which it can use to tie up in bonds with durations of less than one year.This money cannot be immediately reduced to liquuid without some effort,but it does earn a higher return than cash by itself.It is cash and investments that give immediate value and could be distributed to shareholders with minimal effort. Accounts Receivable is the money that is currently owed to a company by its customers.The reason why the customers owe money is that the product has been delivered but has not been paid for yet.Companies routinely buy goods and services from other from other companies using credit. Although typically accounts receivable is almost always turned into cash within a short amount of time,there are instances where a company will be forced to take a write-off for bad accounts Receivable is almost always turned in to cash within a short amount of time,there are instances where a company will be forced to take a write-off for bad Accounts receivable if it has given credit to someone who cannot or will not pay. The allowance for baddept is the money set aside to coverthe potential for bad customers, based on the kind of recievables problems the company may or may not have had in the past.However, even given this allowance,sometimes a company will be forced to take write-down for accounts receivable or convert a portion of it into loan if a big customer gets into a real trouble.Looking at the growth in accounts receivable relative to the growth in revenues is important-if receeivables are up more than revenues,you know that a lot of the sales for that particular quarter have not been paid for yet. Inventories are the components and finished products that a company has currently stockpilled to sell to customers.Not all companies have inventories, particularly if they are involved in advertising,consulting,services or information industries.For those that do,however,inventories are extremely important.Inventories should be viewed some what skeptically by investors as an asset.first,because of various accounting systems like FIFO and LIFO as well as real liquidation compared to accounting value,the value of inventories tie up capital.Money that is sitting in the form of inventory remains unproductive. Finally,Prepaid Expences are expenditures that the company has already paid to its suppliers.This can be a lump sum given to an advertising agency or a credit for some bad merchandise issued by a supplier.Although this is not liquid in the sence that the company does not have it in the bank,having bills already paid is a definite plus.It means that these bills will flow to the bottom line and become liquid assets. Current liabilites

Current liabilities are what a company currently owes to its suppliers and creditors.These are short-term depts that require a company to convert some of its current assets into cash  in order  to pay them off.These are all bills that needs to be paid,liabilites are also  a source of assets .Any money that money that a company pulls out of its line of credit or gains the use of because it pushes of its line of credit or gains the use of because it pushes out its accounts payable is an asset that can be used to grow the business.there are five main categories of current liabilities:Accounts Payable,Accured expenses,income tax payable,Short Term notes payable ad a portion of long -term Debt Payable.

Accounts Payable is the money that the company currently owes to its suppliers ,its partners and its employes.Basically,these are the basic costs of doing business a company,for whatever reason,has not paid off yet.One company's Accounts payable is another company's accounts receivable,which is why both terms are similarly structured.A company has the power to push out some of its Accounts payable,which often produces a short term increase in earnings and current assets. Accured Expences are bills that the company has raked up but has not yet paid. These are normally marketing and distribution expences that are billed on a set schedule and have not yet come due.A specific type of accured expense is income tax payable.This is the income tax a company accures over the that it does not pay yet according to various central,state and local Tax schedules.Although subject to withholding,there are some taxes that simply are not accured by the government over the course of the quarter of the year and instead are paid in lump sums whenever the bills is due. Short-Term Notes Payable is the amount that a company has drawn off from its line of credit from a bank or other financial institution that needs to be repaid within the next 12 months or less..The company also might have a portion of its Long-Term Dept-One of those little accounting quirks. Dept & Equity The remainder of the balance sheet is taken up by a hodge-podge of items that are not current,meaning that they are either assets that cannot be easily turned in to cash or liabilities that will not come due for more than a year.Specifically,there are five main categories-Total Assets,Long-Term Notes payable,Stockholder's/Shareholder's Equity,Capital Stock and Retained Earnings. Total Assets are assets that are not liquid,but that are kept on a company's book for accounting purposes.The main components are plants,property & equipment and encompasses any land,buildings,vehicles and equipment that a company has bought in order to operate its business.Much of this is actually subject to an accounting convention called Depreciation for tax purposes,i.e., the stated value of the total assets and the actual value or price paid might be very different. long-Term notes payable or long Long term liabilites are loans that are not due for more than a year.These are normally loans that are not due more than a year.These are normally loans from banks or other financial institutions that are secured by various assets on the balance sheet ,such as inventories.Most companies will tell you in a footnote to this item when this dept is due & what interest rate the company is paying. The last main component,Stockholder's or Shareholder's Equity,is composed of Capital stock is the par c=value of the stock issued that is recorded purely for accounting purposes and has no real relavance to the actual value of the company's stock.Capital in excess of stock is another weird accounting convention that is pretty difficult to explain.essentially,it is any additional cash that a company gets from issuing stoch in excess of par value (premium) under financial conventions. Retained earnings is another accounting convension that basically takes the money that a company has earned,less any earnings that are paid out to shareholders(in the form of dividents and stock buybacks),and records this on the company's books. retained earnings simply measure the amount of capital a company has generated and is best used to determine what sort of returns on capital a company has produced.If you add together capital stock and retained earnings,you get shareholder's equity that shareholders currently have in the company. Working Capital The best way to look at current assets and current liabilities is by combining them in to something called Working capital.Working can be positive or negative.Working capital is basically an expression of how much in liquid assets the company currently has to built its business,fund its growth and produce share holder value.If a company has ample positive working capital,then it is in good shape,with plenty of cash in hand to pay for everything,it might need to buy.If a company has negative Working capital,then its current current liabilities are actually greater than their current assets,so the company lacks the ability to spend with the same aggresive nature as a working capital will always outperform a company with negative working capital. Working Capital is the absolute lifeblood of a company.About 99% of the reason that the company probably became public in the first place had to do with getting Working Caoital for whatever reasons -building the busineess,funding acquisitions or developng new products.Anything good that comes from a company springs out of Working capital and still has bills to pay and products to develop,it is headed for serious trouble. Summing up Well,that just about covers the important components of a balance sheet.Essentially,a balance sheet is ,at least for the most part,an instant"snapshot" of the assets used by the company and of the funds that are related to those assets .It is static document relating to one point in one time.We therefore take repeated "snapshots" at fixed intervals -months,quarters,years-to see how the assets and funds change with the passage of time.

Investing in stocks-ten questions

1. How does the company make money?

  If you don't know what you're buying,you're hardly in a position to know what you should be paying for it. So before you buy a stock,you need to get  a handle on how the company earns its income.As basic as that sounds,the answer is not always so obvious.A company's main line of business may be making much money on it. But it may have other business such as its financing arm which will probably be driving its profit path.That does't necessarily make the company's stock a bad investment.But clearly,it gives you a better understanding of the company's risks and potential profits.

Leaf through the filings of companies (registered with local and national exchange regulatory authority and few other apex institutions),and you will find dozens of similar examples.That's why a company's most recent annual report is required reading for any stock invester.There you will find a detailed discription of a company's business unit & a breakdown of the sales and earnings figures that come from each.You will also find the answer to another crucial quistion:Are those earnings likely to be converted into cash for investors? While "net income" and "earnings per share" results may dominate the headlines in the business press,those figures are merely acounting concepts. It's cold,hard cash that counts that counts the most for shareholders-either in the form of dividents or reinvestment in the company's operations that should lift stock price.Turn to the statement of Cash flow in the annual report and see if"cash flow from operation activites" is positive or negative and whether it has been growing or declining.And check for this red flag:Are net earnings (as reported on the income statement) increasing while cash flow is declining? That could signal the use of creative acounting practises designed to lift paper profits,and which will be of little benefit to sharehlders. 2.Are sales real? As far as cash is concerned,it,s important to realize that, thanks to accounting rules,a company can book sales revenue long before the cash actually comes in the door(in the worst-case scenerio,the cash never comes in the door).And that can drastically effect the price you should be paying for the stock today.How can you tell if it's case? Often it's clearly spelled out in the footnotes of the company's quarterly or annual financials (the company's filings)

Sometimes the warnings signs of revenue manipulation are more subtle.For instance,be alert to companies whose sales are increasing at a far faster clip than those of its competiters."If you can't nail it down to something specific,like the company having a product they can't keep on the shelves,you have a right to be suspecious". Goes a popular statement of caution from financial assists. Be wary also of companies whose solesourse of sales growth apears to come from gobbling up other companies.If a firm is averaging more than a couple of acquistitions a year, the motive is likely be managements desire to satisfy the markets short term exceptions.Over the longer haul,integrating a bunch of didparate companies into one can get messy and costly.

3.How is the company doing relative to its competitors?

 Before buying a stock,it's vital to know how it staks up against the competition.The first readily accessible place to start your analysis is with sales figures."the best clue as to whether a company is beating its competitors is to simply watch year-over-year revenues.If the company is competing in a high-growth industry(like mobile phones or noteboooks), one must ask if its sales is growing as fast as those of its competitors.If it's operating in a mature industry (like grocery retailing or steel),have sales been holding  their own over the past few years? Pay close attention as well to the sales inroads made by new competitions,especially in those industries that aren't growing.

And dom't forget the cost side of the equation when comparing a company with its rivals. Automakers GM and Ford a short while back,for example,were saddled with huge costs related to pension and health-care plans for their retires-costs that put them at a severe competitive disadvantage to foreign competitors like Toyota and Honda. 4.How does the broader economy affect thing?

Some stocks are highly cyclical- in other words,the company's perfomance is heavily dependent on the state of economy.And cyclical stocks aren't always the bargain they appear to be.For example,when th eeconomy is on a downsing,the stocks of paper companies may begin to look incredibly cheap. But there's good reason for that :In tough economic times many business cut back on their advertising;newspapers and magazines therefore sell less paper. Of course,the opposite effect usually occurs when coming out of a recession.
Inventors should also pay close attention to trends in interest rates,since rate moves can have a dramatic effect on many industries.The slashing of interes rates over the year(2002-2003) for instance,had resulted in a record wave of home financing(and refinancing) and spurred consumer spending. That has greatly benefited industries such as home builders,appliance manufctures,and retailers. But interest rates do not always go south and it was only a matter of time before they rose. So companies that benefit from falling rates may see their growth slow down significantly whe this occurs.
Perhaps one of the most important factors to consider before buying a stopck is the degree of price competition that exist within the industry.Price wars may be great for consumers,but they can quickly kill a company's profits. According to an analysis of FORTUNE 1000 companies conducted by the consulting firm McKinsey & Co., for each 5% decrease in its selling price, a compay would need to increase the number of units it sells by 18% to break even.For most industries that just may never happen. In most cases a company fighting a price war must have a big cost advantage over its competitions if it hopes to remain profitable. Just witness the havoc the "so-called" "cola wars" have continually wreaked on the bottom lines of Coke & Pepsi.

5. What could really burt-or even kill-the company over the next few years?

 Before you invest in a company,you must give some thought to the worst-case scenarious it may face in the years ahead.For instance, a business that's dependent on the customer for a huge chunk of its sales could collapse if it lost that customer.

Some busineesss are jusr inherently more riskyu than others.Consider that many profitless biotech companies whose shares have soared only to come crashing down after their wonder drugs did not get necessary approval from concerned authorites. 6. Is managemaent sweeping expences under the carpet?

Throughout the course of a company's gistory,write downs and restructuring charges are often unavoidable.But alarm bells should go off if a company has a habit of taking those "one-time" charges appearing  in atleast three of the past five years of income-statements,you should be wary of the stock.In fact,studies have shown that  about 70% of the time,the stocks of companies falling in to this category consistenly under-perform the major stock market's index. Check the notes to the financial statements for an explanation of the one-time charges;sometimes it will relate to a move that has actually benefited the company,such as the early retirements of dept refinanced at a lower rate.But all too often the charges spell bad news gor potential investors.

7. Is the company living within its means?

 Even if a company's profits look rosy today,those good times simply won't last if it has raked up a gargantuan pile of long-term liabilities. Before you buy any stock,check out the amount of dept on the balance sheet-too much dept is risky,since a slowdown in a sales or a hike in interest rates could threaten a company's ability to make interest payments. And it greadly decreases a business' margin for erroe. What's more,dept holders come first in the pecking order; a company must pay interest on its dept but is under no obligation to pay dividents to shareholders.To determine whether a company is overloaded,divide long-term dept by total capital(dept plus shareholders's equity-bot numbers are on the balance sheet). If the result tops 50 %,there's a strong chance the company is borrowing beyond its means'
 But dept isn't the only way a company can get in over its head. Stock options-that great boom to executive compensatiion-come at a steep price to shareholders.In the footnotes to a company's annual report,it must disclose what earnings would have been had options been factored in to the equation. Make this footnote required reading: Options can quikly turn reported earnings in to losses.

8. Who is running the show?

 Assessing the quality of a company's leadership team is not always a straight forward exercise for the average outsider.Still,experts say there are some classic indicators that indicators that investors should consider before buying a stock.Has the management team been consistent in its message,or is it constantly changing strategy and/or blaming outside forces for poor perfomance? If the latter,steer clear of the stock.
 Even a company's headquarters can say a lot about where the management team has placed its priorites.If a comapny  has a spanking-new headquarters and it possess any of the following in the headquartes:an architectural award for design,a waterfall in the lobby,or a heliport on the roof, it simply means that there's just too much shareholder cash sloshing around.As lighthearted as this warning may sound ,it is important to understand that,in effect,the management is saying:"We have succeeded (that is if they really have acheived most of their goals) and now we're buiding a huge monument to our victory". They probably don't realize that by changing from a frugal way of life into an astentatious one, it need not necessarily help the future prospects of the company.

9.What is the company really worth?

 The greatest company in the world can make for the lousiest investment in your portfolio if you pay too much for the stock. By the same token,a company with average fundamentals can be your star performer if you buy it at a cheap enough price. How often one sees people jumping at the chance to buy just about anything at a discount such as motor vehicles,electronic items-except of course stock. Indeed,all too often investors prefer to wait until the price of a stock has gone up before buying in.
  Don't in to this trap. If the stock  you are thinking about buying has been on a rip-roaring tear of late,hitting its 52-week high,find out why: The fact that it's hot isn't enough reason for you to dive in.This would be "heard mentally".
 Here,the stock's price/earnings ratio(the stock price divided by earnings per share) is still one of the best and quicker ways to value a company.As a general rule,most value-oriented portfolio managers won't touch a stock with a P/E ratio above 30,even if it operates in a growing industry.(And why would they?Compared with the overalll markets valuation,that means the company's returns would have to be roughly 50% better for investors to profit).Remember,if you're using "next years" projected earnings to calculate your ratio,you're guessing-not evaluating.As mentioned above,review the cash flow statement,checking for positive cash flows,any rise in stock price will be much more a reflection of wishful thinking than econopmic reality.

10. Do I really need to own this stock?

  With innumerable publicly traded stocks available for sale,there's no one "must have" investment.But all too often,we allow ourselves to become convinced that we'd be missing the boat if we didn't own the likes of Toyota or BP.Shop around just as you would for,say, clothes or stereosystems.More often that not there will be a bargain the corner.
 If you invest on the basis mentioned above,you'll hardly go wrong.you'll always have the comfort of knowing that you have investedin,not gambled with,your long-term finncial future.

'''Can you answer this question?'''

Suppose an elementry particle had acheived a velocity equal to 75% of the velocity of light by using a particle accelerator,now cosider another particle of same mass and same nature as that of the previous one and accelarated to the same velocity that is equal to 75% of the velocity of light and travelling in the opposite direction relative to the first particle,then according to the vector addition we must expect a relative velocity (for any one of this particle) that is more than the velocity of light! can it be possible?

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