Friday, 22 June 2018

(Post 34/week 25)Investment project updates:My first funding societies campaign experience/financial statement breakdown part 3

6.first funding societies campaign experience/financial statement breakdown part 3



To further understand more about reading financial statements, here is the pdf copy of a guide to reading financial statements: Download here

Financial statement as below:

Financials FYE 30 Jun
30 Jun 2015(audited),30 Jun 2016(audited),30 Jun 2017(audited)

(Revenue 2015:$22,121,189),(Revenue 2016:$40,818,446),(Revenue 2017:$58,522,060)
  • Revenue: It is also known as sales, is how much money a company brought in for a particular quarter or year. A solid company could see its revenue increasing year by year unless there is a one-off event
  • As you can see down the financial statements, the revenue is gradually increasing year by year making this a solid company, hence I will give it another +1
(Cost of sales 2015:$27,135,367), (Cost of sales 2016:$42,795,026),(Cost of sales 2017:$51,009,862)
  • Sometimes known as the cost of goods sold, it is the expenses directly involved with creating the revenue such as raw materials, service, and labour
  • E.g in a factory, cost of sales refer to electricity bill require to operate the machinery, fuel for transporting the workers etc(A little unsure about it myself also as there are many factors affecting the costs of goods)
  • Increasing cost of sales throughout 2015-2017, hence -1
(Gross profit 2015:-$5,014,178),(Gross profit 2016:-$1,976,580),(Gross profit 2017:$7,512,198)
  • Gross profit=revenue+cost of sales(cost of sales is considered as it is the expenses)
  • E.g 2015 (-$5,014,178)=$22,121,189+(-$27,135,367)
  • E.g 2016 -$1,976,580=$40,818,446+(-$42,795,026)
  • E.g 2017 $7,512,198=$58,522,060+$51,009,862
  • Gross profit is the difference between revenue and cost of sales, the number gives an indication of the company financial health and how well the company is able to price its product. Higher gross profit also indicates that the company is also able to fend off competitor within the same industry. With high gross profit, the company is able to pay for its operating costs and other expenses
  • Even though the gross profit start off in the negative zone it is generally increasing, this could be a +1 factor
(Depreciation 2015:$39,197),(Depreciation 2016:$11,416),(Depreciation 2017:$5,517)
  • It indicates how much of an asset value has been used up due to wear and tear. Depreciation usually applies to assets such as vehicles, machinery, computer, and furniture. Companies spread the cost of the assets over the periods they are used in
  • Basically, this means machinery, computer may break down in a company and expenses to repair the machinery or computer occurs
  • If you look through the financial statements below, you can see that the depreciation is generally decreasing over the years which is a good thing, another +1
(Staff Cost 2015:$14,563,597),(Staff Cost 2016:$3,931,966),(Staff Cost 2017:$2,611,415)
  • Also known as staff salary and related expenses or operating expenses, it also involves other expenses like administrative, marketing, distribution, and R&D. Please bear in mind that operating expenses are different from the cost of goods sold as they are not linked to the production of a product that brings in the company revenue
  • You can see that generally, the staff cost is decreasing over the years, some people may see this as the company saving money but if the company is constantly cutting cost to drive up the revenue, it is not a solid company as its revenue may become stagnant, hence a "not sure factor ",0 pt here
(Other operating expenses 2015:$72,692),(Other operating expenses 2016:$442,103),(Other operating expenses 2017:$42,885)
  • See staff cost, probably for miscellaneous stuff such as entertaining client, purchase of office equipment etc, quite a lot of other factor are also involve
  • What causes the sudden jump from 2015 to 2016? unknown factor hence +0
(Operating profit 2015:-$19,689,664),(Operating profit 2016: -$6,362,065),(Operating profit 2017:$4,852,381)
Link:https://www.investopedia.com/terms/o/operating_profit.asp
  • Operating profit=Gross profit + depreciation + staff cost +other operating expenses
  • E.g 2015 19,689,664=(-$5,014,178)+(-$39,197)+(-$14,563,597)+(-$72,692)
  • E.g 2016 (-$6,362,065)=(-$1,976,580)+($11,416)+($3,931,966)+($442,103)
  • E.g 2017 $4,852,381=$7,512,198+$5,517+$2,611,415+$42,885
  • Operating profit is an accounting figure that the profit earned from a company's ongoing core business operations, thus excluding deductions of interest and taxes. This value also does not include any profit earned from the firm's investments, such as earnings from firms in which the company has partial interest.
  • Operating profit can be calculated using the following formula:
    Operating Profit = Operating Revenue - Cost of Goods Sold (COGS) - Operating Expenses - Depreciation - Amortization
  • Initially, you can see that the operating profit in 2015 is in the negative zone but it is increasing gradually over the years into the positive zone, hence I believe they will be able to pay their debt and this loan, hence I will give it a +1
(Add: other income 2015:$227,998),(Add: other income 2016:$386,118),(Add: other income 2017:$24,935,046)
Link:http://www.investorwords.com/3522/other_income.html
  • Term on an earnings report used to represent income from activities other than normal business operations, such as investment interest, foreign exchange gains, rental income, and profit from the sale of non-inventory assets
  • This part is also a little mystery to me, I think its probably due to them being listed in the sgx and gaining fund from the shareholders as being a civil engineering company, I think it is unlikely to gain other income in the form of rental income and profit from the sale of non-inventory assets or maybe the management is using the fund to invest, as I am unsure about this part, I will probably give it a +0 point
(EBIT 2015:-$19,461,666),(EBIT 2016: -$5,975,947),(EBIT 2017:$29,787,427)

Link:https://www.investopedia.com/terms/e/ebit.asp
  • EBIT stands for: Earning before interest and tax
  • EBIT=Operating profit + Add: other income
  • E.g 2015  -$19,461,666=(-$19,689,664)+($227,998)
  • E.g 2016  -$5,975,947= (-$6,362,065)+$386,118
  • E.g 2017 $29,787,427=$4,852,381+$24,935,046
  • Earnings Before Interest & Taxes (EBIT) is an indicator of a company's profitability, calculated as revenue minus expenses, excluding tax and interest. EBIT is calculated as:EBIT = Revenue - Operating Expenses (OPEX) or EBIT  = Net Income + Interest + Taxes
  • EBIT is also referred to as Operating Earnings, Operating Profit, and Profit Before Interest and Taxes (PBIT)
  • The same stand with operating profit, the EBIT is increasing gradually over the years, hence I think this is another +1 factor
(Less: other loss 2015:$31,874,460),(Less: other loss 2016:$4,349,182),(Less: other loss 2017:$2,594)
Link:https://www.reviso.com/accountingsoftware/accounting-words/loss
  • Loses can result from a number of activities such as; sale of an asset for less than its carrying amount, the write-down of assets, or a loss from lawsuits
  • Losses on Sale of Assets: This is known as a nonoperating item resulting from the sale of an asset (excluding inventory) for less than the amount shown in the company's accounting records. Meaning that the asset was sold for less than it was worth in the company's books.
    Since the loss is outside of the main activities of a business, it is reported on the income statement as a nonoperating or other loss.
  • Loss from Lawsuit: A reduction in net income that comes from a judgment against the company. 
  • In my opinion,most of the loss that this company have is probably from litigation that I mention in part 2 of this campaign, as this company nature is in the construction and civil engineering business it probably have to pay out some compensation to the workers or pay a fine to MOM(ministry of manpower) for failing to adhere to safety practice
  • This definitely gets a -1
(Net Profit (Loss) for the year 2015:-$51,336,126),(Net Profit (Loss) for the year 2016: -$10,325,129),(Net Profit (Loss) for the year 2017:$29,784,833)
Link:https://www.investopedia.com/terms/n/netloss.asp
  • Net Profit(Loss) for the year=EBIT+Less: other loss(Less: other loss is counted as negative due to it being a loss)
  • E.g 2015  (-$51,336,126)=(-$19,461,666)+(-$31,874,460)
  • E.g 2016 (-$10,325,129)=(-$5,975,947)+$4,349,182
  • E.g 2017 $29,784,833=$29,787,427+$2,594
  • Net loss also referred to as a net operating loss (NOL), is the result that occurs when expenses exceed the income or total revenue produced for a given period of time. Businesses that have a net loss don't necessarily go bankrupt because they may opt to use their retained earnings or loans in order to stay afloat. This strategy, however, is only short-term, as a company without profits cannot continue surviving for a long period of time.
  • The same stand with operating profit and EBIT, the net profit and loss is decreasing gradually over the years and this means that the business is gradually getting better, hence this get a +1
(Fixed Asset 2015:$12,293,719),(Fixed Asset 2016:$11,572,250),(Fixed Asset 2017 :$6,631,746)
  • Fixed asset are property, plant equipment, and vehicles. These assets are used to operate the business but are not available for sales.
  • Decreasing fixed asset may be a bad sign or perhaps the company is cutting cost, hence +0
(Current Asset 2015:$51,415,834),(Current Asset 2016:$20,220,709),(Current Asset 2017:$28,853,352)
  • Current asset are asset that is expected to convert into cash for the company such as cash and short-term deposits(sometimes known as cash and cash equivalents or cash and bank balances), inventories, trade receivables, and the money for the companies is expected to collect as part of the progressive payment for a project (applicable to a project based company). under current assets, a few important you should know are:
  • Cash and cash equivalents are the amount of money the company has in the bank. Remember, cash is KING!if the company has more cash, it will either mean that the company may not need to borrow or need only to borrow a little to operate the business Investors love to invest in a company that has low or no debt(borrowing). With little to no borrowing, the companies will be spared from high-interest expense or the probability of running into problems repaying the debt if the business is not profitable or not growing. However, if the company is sitting on a pile of cash but is not returning the cash as the dividend to the shareholders or expanding the business, the management is not putting the money to good use and generating a better return for shareholders )
  • Being a SGX listed company,some of the current asset is probably paid to shareholder as dividend and probably used to pay their debt,the current asset has decreased over the years,however a low current asset not necessary be a good thing(as it may mean that they do not have enough cash for emergency used )nor a high current asset (as it may mean that the company is currently sitting on a pile of cash but is not returning the cash as dividend to the shareholders or expanding the business as such this is also another "not sure factor", so I will give it +0 point here
(Total Asset 2015 :$63,709,553),(Total Asset 2016:$31,792,959),(Total Asset 2017:$35,485,098)
  • Total asset=Fixed asset +Current asset 
  • E.g 2015  $63,709,553=$12,293,719+$51,415,834
  • E.g 2016  $31,792,959=$11,572,250+$20,220,709
  • E.g 2017  $35,485,098=$6,631,746+$28,853,352
  • The total asset that a company have, as its above factor are +0, this will be +0 too
(Fixed Liabilities 2015:$0),(Fixed Liabilities 2016:$0),(Fixed Liabilities 2017:$0)
Link:https://en.wikipedia.org/wiki/Fixed_liability
  • fixed liabilities are debts, bondsmortgages or loans that are payable over a term exceeding one year. These debts are better known as non-current liabilities or long-term liabilities. Debts or liabilities due within one year are known as current liabilities.
  • No liabilities at $0? ,+1 point!
(Current Liabilities 2015:$98,426,519),(Current Liabilities 2016:$76,835,054),(Current Liabilities 2017:$26,543,565)
  • Current liabilities: current liabilities are what the company owns and must be repaid within the current accounting year. These include trade and other payables(also known as trade creditors), loans and borrowing, amount due to customers for contracts and contract work in progress(applicable only to a project based company) and other financial obligations
  • Basically, this includes this loan too!
  • As the current liabilities is decreasing year to year, I will give it +1
(Total Liabilities 2015:$98,426,519),(Total Liabilities 2016:$76,835,054),(Total Liabilities 2017:$26,543,565)
  • Total liabilities=Current liabilities + fixed liabilities
  • E.g 2015 $98,426,519=$0+$98,426,519
  • E.g 2016 $76,835,054=$0+$76,835,054
  • E.g 2017 $26,543,565=$0+$26,543,565
  • As its above factor are both +1, I will give it +1 too
(Equity 2015:-$34,716,966),(Equity 2016:-$45,042,095),(Equity 2017:$8,941,533)
  • Shareholders equity refer to the company's value or net worth. It basically means the money that is left if a company sold all of its assets and paid off all its liabilities. This leftover money belongs to the shareholders, or owners of the company
  • Equity= assets - liabilities
  • The most important section of equity is retained earning also known as retained profit or accumulated profits. As the word suggests the company will retain earning for investment purposes, distribute them as a dividend or pay off its debt. If the company is making a loss it will be called retained losses.
  • Retained earnings do not represent the free cash flow of the company
  • The retained earning has increased from negative to positive, hence another +1
(Total Liabilities and Equity 2015:$63,709,553),(Total Liabilities and Equity 2016:$31,792,959),(Total Liabilities and Equity 2017:$35,485,098)
  • Total Liabilities and Equity=Total liabilities + equity
  • E.g 2015 $63,709,553=$98,426,519+(-$34,716,966)
  • E.g 2016 $31,792,959=$76,835,054+(-$45,042,095)
  • E.g 2017 $35,485,098=$26,543,565+$8,941,533
  • As both of its factor has +1,this will get a +1 too
Total num of -1=2
Total num of +0:5
Total num of +1:11

Total score=9/18(passed!)

Will continue with part 4 the last part next week!

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