SG Young Investment: Understanding Financial Statements (Part 1)


SG Young Investment: Understanding Financial Statements (Part 1)

To be an trader, you should know how to learn financial statements. I’d say that is a skill that every investor must know. In fact, Warren Buffet said that the best skill a person can learn during his or her school days is the skill of accounting. Within an annual report, you will basically find 3 financial statements. I will go through all 3 statements at length as easy as I could.

For this post, we shall use the business Singtel’s financial statement as an example. It’s the largest company outlined on SGX in terms of market capitalization. It is also one of the blue chip stocks and is one of the 30 components stock that make up the Straits Times Index (STI). Let’s focus on the income declaration.

You can gain access to Singtel’s income declaration here. Alternatively, you can get the full annual report from either SGX or Singtel’s own investor’s connection website. The income declaration shows how much a ongoing company is making or dropping. The first thing we see on the income statement is revenue. It’s the sales the business has designed for that quarter or year. This is actually the money it gained through offering a ongoing goods and services.

For Singtel, it can be the offering of mobile phone service which we pay a regular monthly subscription. The money collected is documented as revenue. Next, we see the cost of goods sold. This is the cost that is involved in creating the revenue directly. It could be labor costs, raw material costs, or the initial cost price of the products.

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This is deducted from the revenue. After deducting cost of goods sold from income, we get gross revenue. Gross income is revenue minus cost of goods sold. 5.5 Billion. This is after deducting cost of goods sold of 12.7 Billion. Next we see Selling General & Admin Expenses. This is also called operating expenses and includes expenses such as marketing costs, administrative salaries and research and development costs. Another is Depreciation & Amortization. This cost is the depreciation on assets that the ongoing company purchases.

Assets like machineries and motor vehicles will drop in value as time passes. The depreciation reflects the cost of the depreciation. Another important one we have to know is operating income. This is revenue minus cost of goods sold and all operating expenses also. It is the profit the ongoing company created from its actual functions. For Singtel, it is the earnings from its main business in the mobile, iPTV and internet services.

You’ll see the next 2 rows being interest expenditure then interest income. This records the eye the ongoing company paid on bonds it issued or the interest collected from bonds it has. EBT means earnings before taxes. A more accurate term you can look at is EBITA. That is cash flow before interest, amortization and taxes.