The Basics of Understanding Financial Statements Quotes

“Depreciation is considered a non-cash expense because the money required to purchase a particular fixed asset has already been spent.”
― Mariusz Skonieczny, The Basics of Understanding Financial Statements: Learn how to read financial statements by understanding the balance sheet, the income statement, and the cash flow statement

“A quick way to check to see if the company has taken on too much debt is to compare its net income to its total debt. If it would take twenty years to repay this debt (a situation many airline companies and auto manufacturers are often in), it would not be a good sign. However, if the company could pay it off in less than five years, then the debt level would probably not be a concern.”
― Mariusz Skonieczny, The Basics of Understanding Financial Statements: Learn how to read financial statements by understanding the balance sheet, the income statement, and the cash flow statement

“Prepaid expenses are expenditures that have already been made for benefits that the company will receive in the near future. Examples of prepaid expenses are advances for insurance policies, rent, and taxes. Prepaid expenses are classified as current assets, not because they can be turned into cash, but because if they had not been prepaid, that cash would have to be spent within 12 months. Some prepaid expenses also result in cost savings, such as paying insurance premiums annually instead of monthly.”
― Mariusz Skonieczny, The Basics of Understanding Financial Statements: Learn how to read financial statements by understanding the balance sheet, the income statement, and the cash flow statement

“As a result, the depreciation expense as a percentage of revenues tends to be lower for stronger players.”
― Mariusz Skonieczny, The Basics of Understanding Financial Statements: Learn how to read financial statements by understanding the balance sheet, the income statement, and the cash flow statement

“some investors treat depreciation as if it were not an expense by adding it back to operating income. For example, they use a metric called EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) to analyze the earning power of a company and compare it to its competitors. This kind of thinking is flawed.”
― Mariusz Skonieczny, The Basics of Understanding Financial Statements: Learn how to read financial statements by understanding the balance sheet, the income statement, and the cash flow statement

“it is less risky to buy stocks of companies that do not need to rely on huge research and development expenditures”
― Mariusz Skonieczny, The Basics of Understanding Financial Statements: Learn how to read financial statements by understanding the balance sheet, the income statement, and the cash flow statement

“One negative aspect of research and development spending is that companies in certain industries have to spend more on it than companies in other industries.”
― Mariusz Skonieczny, The Basics of Understanding Financial Statements: Learn how to read financial statements by understanding the balance sheet, the income statement, and the cash flow statement

“The amount of research and development expense can give companies competitive advantages.”
― Mariusz Skonieczny, The Basics of Understanding Financial Statements: Learn how to read financial statements by understanding the balance sheet, the income statement, and the cash flow statement

“Operating expenses consist of selling, general and administrative expenses (SG&A); research and development; and depreciation.”
― Mariusz Skonieczny, The Basics of Understanding Financial Statements: Learn how to read financial statements by understanding the balance sheet, the income statement, and the cash flow statement

“indication that it is benefiting from some type of competitive advantage. Gross profit margin is calculated by the following formula. GROSS PROFIT MARGIN = GROSS PROFIT/REVENUES”
― Mariusz Skonieczny, The Basics of Understanding Financial Statements: Learn how to read financial statements by understanding the balance sheet, the income statement, and the cash flow statement

“gross profit margin, which is useful for making side-by-side comparisons among a subject company’s current manufacturing efficiency, its past manufacturing efficiency, and that of its competitors.”
― Mariusz Skonieczny, The Basics of Understanding Financial Statements: Learn how to read financial statements by understanding the balance sheet, the income statement, and the cash flow statement

“Gross profit is calculated by subtracting the cost of goods sold from revenues. It is an useful measurement because it shows how efficiently the company manufactures its products. It is necessary to understand that gross profit only includes the costs that are directly associated with either producing or purchasing a product or providing a service.”
― Mariusz Skonieczny, The Basics of Understanding Financial Statements: Learn how to read financial statements by understanding the balance sheet, the income statement, and the cash flow statement

“The sources of revenues are key here, and to determine them, investors usually have to do more research beyond simply reading the income statement.”
― Mariusz Skonieczny, The Basics of Understanding Financial Statements: Learn how to read financial statements by understanding the balance sheet, the income statement, and the cash flow statement

“Unlike the balance sheet, the income statement is prepared for a given period such as a quarter or a year, versus a snapshot on a particular day.”
― Mariusz Skonieczny, The Basics of Understanding Financial Statements: Learn how to read financial statements by understanding the balance sheet, the income statement, and the cash flow statement

“The balance sheet shows the assets that businesses own, liabilities that they owe, and equity that is left for shareholders.”
― Mariusz Skonieczny, The Basics of Understanding Financial Statements: Learn how to read financial statements by understanding the balance sheet, the income statement, and the cash flow statement

“When a company generates higher and higher retained earnings year after year, it is a good sign because it means that the enterprise is profitable and those retained earnings can be used to internally”
― Mariusz Skonieczny, The Basics of Understanding Financial Statements: Learn how to read financial statements by understanding the balance sheet, the income statement, and the cash flow statement

“Capital stock and additional paid-in capital represent the original capital invested into the business and any additional funds added later.”
― Mariusz Skonieczny, The Basics of Understanding Financial Statements: Learn how to read financial statements by understanding the balance sheet, the income statement, and the cash flow statement

“The three basic categories included in shareholders’ equity are capital stock, additional paid-in capital, and retained earnings.”
― Mariusz Skonieczny, The Basics of Understanding Financial Statements: Learn how to read financial statements by understanding the balance sheet, the income statement, and the cash flow statement

“Investors may refer to shareholders’ equity as net worth or book value. It is important to analyze shareholders’ equity because when buying stocks, investors are really buying the company’s assets and assuming its liabilities. In other words, they are buying the shareholders’ equity.”
― Mariusz Skonieczny, The Basics of Understanding Financial Statements: Learn how to read financial statements by understanding the balance sheet, the income statement, and the cash flow statement

“A quick way to check to see if the company has taken on too much debt is to compare its net income to its total debt.”
― Mariusz Skonieczny, The Basics of Understanding Financial Statements: Learn how to read financial statements by understanding the balance sheet, the income statement, and the cash flow statement

“If a company can borrow money at 4 percent and generate 20 percent profit on that borrowed capital, it benefits shareholders.”
― Mariusz Skonieczny, The Basics of Understanding Financial Statements: Learn how to read financial statements by understanding the balance sheet, the income statement, and the cash flow statement

“While this may mean that the company has enough liquidity to cover short-term bills, a current ratio of less than one does not always indicate that the company faces liquidity problems.”
― Mariusz Skonieczny, The Basics of Understanding Financial Statements: Learn how to read financial statements by understanding the balance sheet, the income statement, and the cash flow statement

“The current ratio measures short-term liquidity and is calculated by dividing current assets by current liabilities”
― Mariusz Skonieczny, The Basics of Understanding Financial Statements: Learn how to read financial statements by understanding the balance sheet, the income statement, and the cash flow statement

“The current portion of long-term debt is the amount of debt that matures, or is due, within 12 months.”
― Mariusz Skonieczny, The Basics of Understanding Financial Statements: Learn how to read financial statements by understanding the balance sheet, the income statement, and the cash flow statement

“Accrued expenses are obligations to pay for products or services that are already received but for which an invoice has not been received. Once an invoice is received, an accrued expense becomes an account payable.”
― Mariusz Skonieczny, The Basics of Understanding Financial Statements: Learn how to read financial statements by understanding the balance sheet, the income statement, and the cash flow statement

“One company’s accounts receivable under assets is another company’s accounts payable under liabilities.”
― Mariusz Skonieczny, The Basics of Understanding Financial Statements: Learn how to read financial statements by understanding the balance sheet, the income statement, and the cash flow statement

“Current liabilities are the company’s obligations that are due within 12 months. The most basic current liabilities are accounts payable, accrued expenses, current portion of long-term debt, and income taxes payable.”
― Mariusz Skonieczny, The Basics of Understanding Financial Statements: Learn how to read financial statements by understanding the balance sheet, the income statement, and the cash flow statement

“Money that has to be spent on replacing assets cannot be used on more advantageous purposes that actually benefit shareholders such as buying more equipment, acquiring other companies, paying down debt, paying dividends, and repurchasing shares.”
― Mariusz Skonieczny, The Basics of Understanding Financial Statements: Learn how to read financial statements by understanding the balance sheet, the income statement, and the cash flow statement

“The same concept applies to a business – if a business owns an asset that consumes cash instead of creating it, this asset is more of a liability than an asset, no matter how it is categorized by accountants.”
― Mariusz Skonieczny, The Basics of Understanding Financial Statements: Learn how to read financial statements by understanding the balance sheet, the income statement, and the cash flow statement

“The net amount for property, plant and equipment is achieved after subtracting accumulated depreciation from the fixed assets’ original cost”
― Mariusz Skonieczny, The Basics of Understanding Financial Statements: Learn how to read financial statements by understanding the balance sheet, the income statement, and the cash flow statement