The Income Statement

The income statement is one of the three financial statements - the other two are the balance sheet and cash flow statement - with which stock investors need to become familiar. The purpose of this article is to provide the less-experienced investor with an understanding of the components of the income statement in order to simplify investment analysis and make it easier to apply it to your own investment decisions.


In the context of corporate financial reporting, the income statement summarizes a company's revenues (sales) and expenses quarterly and annually for its fiscal year. The final net figure, as well as various others in this statement, are of major interest to the investment community.


General Terminology and Format Clarifications

Income statements come with various monikers. The most commonly used are "statement of income", "statement of earnings", "statement of operations" and "statement of operating results". Many professionals still use the term "P & L", which stands for profit and loss statement, but this term is seldom found in print these days. In addition, the terms "profits", "earnings" and "income" all mean the same thing and are used interchangeably.


Income Statement Accounts (Multi-Step Format)

• Net Sales (a.k.a. sales or revenue): These all refer to the value of a company's sales of goods and services to its customers. Even though a company's "bottom line" (its net income) gets most of the attention from investors, the "top line" is where the revenue or income process begins. Also, in the long run, profit margins on a company"s existing products tend to eventually reach a maximum that is difficult to improve on. Thus, companies typically can grow no faster than the growth of their revenues.
  
• Cost of Sales (a.k.a. cost of goods (or products) sold (COGS), and cost of services): For a manufacturer, cost of sales is the expense incurred for raw materials, labor and manufacturing overhead used in the production of its goods. While it may be stated separately, depreciation expense belongs in the cost of sales. For wholesalers and retailers, the cost of sales is essentially the purchase cost of merchandise used for resale. For service-related businesses, cost of sales represents the cost of services rendered or cost of revenues. (To learn more about sales, read Measuring Company Efficiency, Inventory Valuation For Investors: FIFO And LIFO and Great Expectations: Forecasting Sales Growth.)
  
• Gross Profit (a.k.a. gross income or gross margin): A company's gross profit does more than simply represent the difference between net sales and the cost of sales. Gross profit provides the resources to cover all of the company's other expenses. Obviously, the greater and more stable a company's gross margin, the greater potential there is for positive bottom line (net income) results.
  
• Selling, General and Administrative Expenses: Often referred to as SG&A, this account comprises a company's operational expenses. Financial analysts generally assume that management exercises a great deal of control over this expense category. The trend of S G&A expenses, as a percentage of sales, is watched closely to detect signs, both positive and negative, of managerial efficiency.
  
• Operating Income: Deducting S G&A from a company's gross profit produces operating income. This figure represents a company's earnings from its normal operations before any so-called non-operating income and/or costs such as interest expense, taxes and special items. Income at the operating level, which is viewed as more reliable, is often used by financial analysts rather than net income as a measure of profitability.
  
• Interest Expense: This item reflects the costs of a company's borrowings. Sometimes companies record a net figure here for interest expense and interest income from invested funds.
  
• Pretax Income: Another carefully watched indicator of profitability, earnings garnered before the income tax expense is an important step in the income statement. Numerous and diverse techniques are available to companies to avoid and/or minimize taxes that affect their reported income. Because these actions are not part of a company's business operations, analysts may choose to use pretax income as a more accurate measure of corporate profitability.
  
• Income Taxes: As stated, the income tax amount has not actually been paid - it is an estimate, or an account that has been created to cover what a company expects to pay.
  
• Special Items or Extraordinary Expenses: A variety of events can occasion charges against income. They are commonly identified as restructuring charges, unusual or nonrecurring items and discontinued operations. These write-offs are supposed to be one-time events. When they are of this nature, investors need to take these special items, which can distort evaluations, into account when making inter-annual profit comparisons.
  
• Net Income (a.k.a. net profit or net earnings): This is the bottom line, which is the most commonly used indicator of a company's profitability. Of course, if expenses exceed income, this account caption will read as a net loss. After the payment of preferred dividends, if any, net income becomes part of a company's equity position as retained earnings. Supplemental data is also presented for net income on the basis of shares outstanding (basic) and the potential conversion of stock options, warrants, etc. (diluted). (To read more, see Evaluating Retained Earnings: What Gets Kept Counts and Everything You Need To Know About Earnings.)
  
• Comprehensive Income: The concept of comprehensive income, which is relatively new (1998), takes into consideration the effect of such items as foreign currency translations adjustments, minimum pension liability adjustments, and unrealized gains/losses on certain investments in debt and equity. The investment community continues to focus on the net income figure. The aforementioned adjustment items all relate to volatile market and/or economic events that are out of the control of a company's management. Their impact is real when they occur, but they tend to even out over an extended period of time.

Conclusion

When an investor understands the income and expense components of the income statement, he or she can appreciate what makes a company profitable. In the case of Company X Y Z, it experienced a major increase in sales for the period reviewed and was also able to control the expense side of its business. That's a sign of a very efficient management effort.

statement of finance

The value of the accurate financial statements generated is undisputed. This is as financial statements are like windows into the health of a company. Just by viewing financial statements, adept business owners will be able to determine the strengths and weaknesses at the time that the statement was generated. With this, the owner can then chart the way into the future for the company, by addressing the weaknesses and capitalizing on the strengths that the company has.

The two main financial statements within any company are the balance sheet and the Profit and Loss statements. The balance sheet provides anyone with a snapshot of the assets and liabilities within a company at any one point in time. This essentially means that the balance sheet shows what the company has and how much they own others. Apart from that, the equation asset = liabilities + capital always holds true within a balance sheet. The liabilities and capital sections indicate the sources of funds for the company while the assets indicate how the company uses the funds that it has. Most importantly, the liability and capital sections indicate money owed to creditors as well as invested amount. If you look closely, you will realize that both of these are obligations of the company that need to be paid.

By analyzing financial ratios that are generated by numbers on a balance sheet, a business owner is able to tell how well the company collects their accounts receivables, how fast the inventory is moving out and replenished, as well as how much exposure the company has towards debt.

The typical company balance sheet will consist of fixed assets and current assets such cash, account receivables, inventory and note receivables. Current assets comprise of assets that can be liquidated fairly quickly and easily in order to be turned into cash. On the other hand, fixed assets are amortized over an extended period of time and are not so easily sold to recover cash.

On the liability section, fixed liabilities include long-term debt of usually more than 12 months of age or contingent liabilities. The current liabilities however are represented by mainly accounts payable and notes payable as well as short term loans. If there is inadequate cash within the company, current liabilities have the ability to drag the company down.

The final element of the balance sheet, the Equity is the amount of capital financing that has been injected into the company. With this, the owner's investment into the business is shown in the balance sheet.

The Profit and Loss statement is used to determine if a company is making a profit or a loss within a specified operations period. The revenue obtained in a period is stated in this statement, and all direct and indirect costs incurred are deducted from the revenue. With this, the profit for that period is obtained, where profits are compared with the previous year's performance level. Profits with which taxation has not yet been accounted for are known as gross debt, while net profits are debt in which all costs have been deducted from.

In conclusion, being able to read financial statements is an advantage for any business owner. Interpreting financial statements are ever important in business, as it allows for the owner to take action before things become worse. By reading financial ratios, a business owner will know what needs to be done before the situation of the company changes. Alternatively, reading financial ratios will also help the business owner plan for the future, by incorporating the leverage on existing strengths of the company.

balancesheet

BASICS

A balance sheet is a snapshot of a business's financial condition at a specific moment in time, usually at the close of an accounting period. A balance sheet comprises assets, liabilities, and owners' or stockholders' equity. Assets and liabilities are divided into short- and long-term obligations including cash accounts such as checking, money market, or government securities. At any given time, assets must equal liabilities plus owners' equity. An asset is anything the business owns that has monetary value. Liabilities are the claims of creditors against the assets of the business.

What is a balance sheet used for?
A balance sheet helps a small-business owner quickly get a handle on the financial strength and capabilities of the business. Is the business in a position to expand? Can the business easily handle the normal financial ebbs and flows of revenues and expenses? Or should the business take immediate steps to bolster cash reserves?

Balance sheets can identify and analyze trends, particularly in the area of receivables and payables. Is the receivables cycle lengthening? Can receivables be collected more aggressively? Is some debt uncollectable? Has the business been slowing down payables to forestall an inevitable cash shortage?

Balance sheets, along with income statements, are the most basic elements in providing financial reporting to potential lenders such as banks, investors, and vendors who are considering how much credit to grant the firm.

1. Assets: Assets are subdivided into current and long-term assets to reflect the ease of liquidating each asset. Cash, for obvious reasons, is considered the most liquid of all assets. Long-term assets, such as real estate or machinery, are less likely to sell overnight or have the capability of being quickly converted into a current asset such as cash.


2. Current assets: Current assets are any assets that can be easily converted into cash within one calendar year. Examples of current assets would be checking or money market accounts, accounts receivable, and notes receivable that are due within one year's time.
   
   Cash
   Money available immediately, such as in checking accounts, is the most liquid of all short-term assets.
   
   Accounts receivables
   This is money owed to the business for purchases made by customers, suppliers, and other vendors.
   
   Notes receivables
   Notes receivables that are due within one year are current assets. Notes that cannot be collected on within one year should be considered long-term assets.


3. Fixed assets: Fixed assets include land, buildings, machinery, and vehicles that are used in connection with the business.
   
   Land
   Land is considered a fixed asset but, unlike other fixed assets, is not depreciated, because land is considered an asset that never wears out.
   
   Buildings
   Buildings are categorized as fixed assets and are depreciated over time.
   
   Office equipment
   This includes office equipment such as copiers, fax machines, printers, and computers used in your business.
   
   Machinery
   This figure represents machines and equipment used in your plant to produce your product. Examples of machinery might include lathes, conveyor belts, or a printing press.
   
   Vehicles
   This would include any vehicles used in your business
   
   Total fixed assets
   This is the total dollar value of all fixed assets in your business, less any accumulated depreciation.
4. Total assets: This figure represents the total dollar value of both the short-term and long-term assets of your business.


5. Liabilities and owners' equity: This includes all debts and obligations owed by the business to outside creditors, vendors, or banks that are payable within one year, plus the owners' equity. Often this side of the balance sheet is simply referred to as "liabilities."
   
   Accounts payable
   This includes all short-term obligations owed by your business to creditors, suppliers, and other vendors. Accounts payable can include supplies and materials acquired on credit.
   
   Notes payable
   This represents money owed on a short-term collection cycle of one year or less. It may include bank notes, mortgage obligations, or vehicle payments.
   
   Accrued payroll and withholding
   This includes any earned wages or withholdings that are owed to or for employees but have not yet been paid.
   
   Total current liabilities
   This is the sum total of all current liabilities owed to creditors that must be paid within a one-year time frame.
   
   Long-term liabilities
   These are any debts or obligations owed by the business that are due more than one year out from the current date.
   
   Mortgage note payable
   This is the balance of a mortgage that extends out beyond the current year. For example, you may have paid off three years of a 15-year mortgage note, of which the remaining 11 years, not counting the current year, are considered long-term.
   
   Owners' equity
   Sometimes this is referred to as stockholders' equity. Owners' equity is made up of the initial investment in the business as well as any retained earnings that are reinvested in the business.
   
   Common stock
   This is stock issued as part of the initial or later-stage investment in the business.
   
   Retained earnings
   These are earnings reinvested in the business after the deduction of any distributions to shareholders, such as dividend payments.


6. Total liabilities and owners' equity: This comprises all debts and monies that are owed to outside creditors, vendors, or banks and the remaining monies that are owed to shareholders, including retained earnings reinvested in the business.

What Is a Financial Statement?

All Probate and Family Courts require you to fill out a Financial Statement if you are a party in a case and your case involves money, such as in a case involving child support or alimony. The purpose of this form is for you to explain your financial situation to the court. The court has a Short form of financial statement and a Long Form. Use the Short Form if your gross income (income before taxes and any deductions) is less than $75,000 per year. Filing a Financial Statement should not be taken lightly. You must tell the truth about all of your income and expenses. This booklet will help you fill out a Financial Statement (Short Form), answer some basic questions about what to include, and give you practical tips that will hopefully make it easier for you to complete this form.

Don't Wait Until the Last Minute

Do not wait until the last minute or until you are in court to fill out a Financial Statement. If you do, you could make mistakes because you are rushed or you may not have all of the information you need. To get a Financial Statement form, go to the Register's Office at the Probate and Family Court. The form itself is on pink paper. You will need to fill this form out before your first hearing. Because you will have a lot of adding, subtracting, and dividing to do to complete the form, we strongly recommend using a calculator. If you do not have one, you may be able to borrow one or buy a very inexpensive one.

How to Use This Booklet

This booklet is written so that it corresponds to the different sections and letters on the Financial Statement. We do not go over how to fill out every line because in many cases the form speaks for itself. The information provided here covers just the areas of the form where you might have questions. For example, in Part 2 we skip from line (b) to line (g) because it is not necessary to cover lines (c), (d), (e), and (f).

What Information Must You Include?

You must fill in every line of the form. If something does not apply to you, write "zero" or "none." If you run out of space on any item, attach a separate sheet of paper. What follows are more detailed instructions about how to fill out the Financial Statement.

Documents That Will Help you Complete a Financial Statement

• Pay stubs for the past 12 months, if you have a salary.
• Gas and electric bills for the past 3 months.
• Telephone bills, for the past 3 months.
• Most recent mortgage statement, deed or other document that states date of purchase, purchase price and lot number, if you own a house or land.
• Tax returns for the last year.

Top of the Form

Write your county on the line next to Division. Fill in the Docket Number. This is the number that the court has assigned to your case. If you do not know it, ask the clerk. Fill in the names of the Plaintiff and the Defendant. The Plaintiff is the person bringing the case to court. The Defendant is the person whom the case is against.

Part 1: Personal Information

Fill in all of the information requested. If your address is impounded (protected by the court) or listing it would put you or your children in danger, do not write your address on the Financial Statement. See Information About How to File Papers in Essex Probate and Family Court.

Part 2: Gross Weekly Income for All Sources

Here you need to provide information about your weekly income before taxes are taken out.

1. Base pay from salary and wages: Give your current salary. If your salary changes from paycheck to paycheck, give the average amount for the past 3 months.
2. Self-Employment Income: If you are self-employed or own a business, you must fill out and attach a form called "Schedule A, Monthly Self-Employment or Business Income." This form is available at the court.
3. Social Security: This is for Social Security Retirement payments (OASDI).
4. Disability: This is for Supplemental Security Income (SSI), unemployment insurance, or worker's compensation.
5. Public Assistance: This includes TAFDC, EAEDC, and Food Stamps.
6. Rental Income: If you get income from rental property, you must fill out and attach a form called "Schedule B, Rent from Income-Producing Property." This form is available at the court.
7. All other sources: This includes child support payments, alimony, and any other income not listed in (a) through (j). Again, if these payments change from time to time, figure out the average weekly amount.
8. Total Gross Weekly Income: Add together all of your income in lines a to k.

Part 3: Itemize Deductions from Gross Income

Here you need to provide your weekly deductions from gross income.

• (a) & (b) If you get a salary, your pay stubs should list federal and state tax deductions.
• (c) If you get a salary, check your pay stub to see how much FICA is taken out. There may also be a separate Medicare deduction on your pay stub. If there is, add the FICA and Medicare together, figure out what the weekly amount of FICA + Medicare is, and put this number on line (c).
  • If the amount of FICA is different on your pay stubs over the past year, you need to figure out the average weekly amount by adding up all FICA deductions over the past 12 months and dividing the total by 52.
  • If you have not been getting a paycheck for a full year, add all the FICA amounts you've received, count the number of weeks you've received paychecks, and divide the total FICA amount by that number of weeks.
• (f) Add together all deductions in lines (a) to (e).

Part 4: Adjusted Net Weekly Income

Subtract line 3(f) from line 2(l) to get your adjusted net weekly income.

Part 5: Other Deductions from Salary

Here you need to provide information about the weekly amount of all other deductions that come out of your salary.

Part 6: Net Weekly Income

Subtract line 5(e) from line 4 to get your net weekly income.

Part 7: Gross Yearly Income from Prior Year

Here you need to provide your gross yearly income (before taxes) from the prior year. Add up all your paychecks for the last calendar year. If you received TAFDC in the last year, multiply the amount on your check (which comes twice a month) by 24 to get your total for the last calendar year. You must also attach a copy of all W-2 and /or 1099 Forms for the prior year.

Part 8: Weekly Expenses

Read through all the categories (a-s) and think about what you will put under each category. The most important thing is to pick only one category to put an expense under and not list it twice. Again, you must fill in the weekly amounts.

(d) & (e) If you have gas heat and you also have other items on your gas bill (stove, dryer, etc...), try to estimate how much of the bill is for heat and put that on line (d) and how much is for other gas charges and put that on line (e).

(f) Put the average telephone bill by adding up the last 3 months of bills and dividing by 13. (g) List water and sewer amounts if you pay for them. If not, write "none".

(i), (j), & (o) House supplies, laundry and cleaning, and incidental and toiletries are very similar categories. Make sure you list each item in only one category. For example:

• (i) House supplies = light bulbs, batteries, toilet paper.
• (j) Laundry and cleaning = laundromat costs, detergent, cleaning supplies
• (o) Incidentals and toiletries = toothpaste, makeup

(k) You will need to provide an average weekly amount you spend on clothing by figuring out how much you spend for the whole year and dividing that by 52. People often buy a few big ticket items over the course of a year, such as new school clothes for children, winter coats and boots for children, clothes for yourself during the year.

(n) If you have medical insurance, in this line you should document how much you have paid out-of-pocket in co-payments and deductibles that your insurance did not cover. This includes dental care, therapy, medicine (such as cough medicine, aspirin, vitamins). If you do not have medical insurance, this line should reflect all of your medical expenses. Again, you must figure out the weekly average amount).

(p) These are repairs and maintenance costs for your car, which include garage costs and gas. This does not include auto loan payments, which go on the next line.

(q) This means auto loan payments.

(r) This includes regular child care and additional babysitting.

(s) Other can include (but is not limited to):

Other expenses not already included

• Restaurants
• Cable
• Vacation
• Public Transportation
• Membership Dues
• Entertainment

Part 10: Assets

(a) Real Estate: This refers to any house or land that you own, either alone or jointly with your spouse or anyone else.

Next to location, list the address.

Next to title, list the book and page number of the deed for the property.

Next to Fair Market Value, give your best estimate as to the price that you could get for it if you sold it today. Write on the form that this is an estimate. If you can not estimate the Fair Market Value, give the purchase price and write on the form that this was the purchase price.

Next to Mortgage, list the unpaid balance on the mortgage.

Next to Equity, subtract the Mortgage from the Fair Market Value. If the answer is a negative number, make sure to put a minus sign before the number.

(f) Give the Fair Market Value of each automobile that you or your spouse own and indicate whose possession it is in. The Fair Market Value is the price that you could get for the car if you sold it today. List the amount unpaid on any car loan. Subtract the amount unpaid on the loan from the Fair Market Value to get the Equity.

(g) List any other personal property that is either in your possession or your spouse's possession, such as: furniture, jewelry, boats, collections, firearms, recreational vehicles, silver, stereo equipment, and tools. For any item over $500 describe it specifically. If the property is in your spouse's possession, indicate that on the form. To estimate the value of your furniture, estimate what you would charge if you sold the entire contents of your home today. This is a rough estimate.

Part 11: Liabilities

Here you must list all of your debts. For each debt you must list:

• Name of the person or institution you owe the money to (creditor),
• Nature of the debt (for example, personal loan, doctor's visit, car loan, household items),
• Date that you first incurred the debt (date of origin),
• Total amount due, and
• How much you are paying or planning to pay on a weekly basis.
• (e) Here you must add up the total amount of the debts and put this on the first line. Then figure out what the total amount of the weekly payments for your debts would be and put this on the second line. If you have been unable to make the payments, write "0" or "none."

Part 12: Number of Years You Have Paid into Social Security

Here you must put the number of years that you've earned money through work and paid social security.

What Do You Do After You Complete the Form?

• Sign the form. The words saying "I certify under penalties of perjury" mean that all the information you have provided is true. This is very important. If you do not tell the truth, a judge can take certain actions to punish you.
• If you are representing yourself, write "pro se" in the blank next to "Attorney's Signature."
• Provide your address and telephone number. If it is impounded (protected by the court) or listing it would put you or your children in danger, then do not write your address or phone number down.
• Make two copies of the form.
• File the original form with the clerk at the Probate and Family Court before or at the time you request a hearing.
• Keep one copy for yourself so that if the court asks you questions you can look at it.
• Give the other copy to the other party. You are required to do this. Likewise, the other party is required to provide you with a copy of his or her Financial Statement.
• Once both parties have filled out the financial statement, you can calculate what child support should be by filling in the child support guidelines worksheet.

financial statement

How to Interpret and profit from Financial Statements

Financial statements are a useful tool for judging the health of a company, and for comparing it to its competitors. They show what the company owes and owns, the profits or loses it has made over a given period, and how their position has changed since their last statement. Generally if you can tell which direction a company is heading in, you can also forecast future stock prices with some accuracy.

Gaining a basic knowledge of financial statements, and applying this knowledge when choosing or assessing investments can help you pick tomorrow's winning stocks, while avoiding tomorrow's losers.

Of course, financial statement analysis will not always factor in significant news events, unexpected incidents, changes in management, and other factors which may influence share prices, but it provides a starting point from which to gauge the present value of shares, independent of future occurrences.

The following report details some simple financial statement explanation and analysis methods. Although the topic can get much deeper and more complex, this article is designed to give investors the ability to understand the numbers and simpler of financial ratios, and be able to use that knowledge to assist them to make better decisions when doing their due diligence.

Balance Sheet

The balance sheet shows a company's financial position at a specific date, usually the last day of the company's fiscal year for annual reports. One side of the balance sheet shows what the company owns and has owing to it, called assets. The other side represents liabilities, which are what the company owes, and also has shareholders' equity, which represents the excess of the company's assets over its liabilities. Shareholder's equity is often referred to as book value.

Total assets are equal to the sum of the company's liabilities plus the shareholders' equity. In other words, take away liabilities from assets and the remainder is what value is owned by the shareholders.

The Balance Sheet can be used to uncover the value of the company, the debt load, and cash position.

Earnings Statements

Also called the Income Statement or Profit and Loss Statement, it shows how much revenue a company received during the year from the sale of its products and services, and the expenses the company incurred due to wages, taxes, operating costs, etc... The difference between the two is the company's profit or loss for the year. The amount left over after taxes is the net earnings.

Net earnings are basically saying how much money the company ‘really' made over the course of the year. Some companies can have low earnings if they used much of their money for research and development, to acquire other companies, fuel aggressive growth, move into new markets, etc, which is much more favorable than if the company had low earnings because they didn't generate many revenues, their expenses were too high, etc...

Statements of Changes in Financial Position

This shows how the company's financial position changed from one year to the next. Also called the cash flow statement, this details how the company generated and spent its cash during the year.

This statement can be used in evaluating the liquidity and solvency of a company, and to assess the ability of that company to generate cash internally, to repay debts, to reinvest in itself, etc...

Sources of Financial Reports

Certainly you can get financial from the companies themselves. Most will gladly fax them to you, or mail you their latest quarterly and annual reports.

However, a faster way to access the information can be by Internet. For example, go to Yahoo.com and choose stock quotes. Enter the ticker symbol for the company you are interested in, and Yahoo will provide its most recent press releases, which will include past quarterly and annual reports with the financial statements. You can also check the previous reports to compare which direction the company is moving in and look for trends (i.e. increasing debt load, unpredictable earnings, decreasing revenues, erratic revenues, etc...).

There are also many other Internet resources which provide similar information, such as.com, com for Canadian issues), etc...

Comparison Shopping

To familiarize yourself with some of the numbers, try looking up the financial of three companies you own or are interested in.

(Balance Sheet) Which of the companies has the greatest long term debt load? Do any of the companies have greater current liabilities than current assets? Compare the current share price to the shareholder's equity (book value): is the share price much greater or less than the book value?

(Earnings Statement) What were the revenues of the most recent year (or quarter) and does the number represent an increase or decrease from the previous period? How much money per share did the company earn (or lose) in the most recent period?

(Statement of Changes in Financial Position) Has company debt been increasing or decreasing? What was the greatest expense the company incurred according to the statement?

Decision Making

Understand that financial statements can provide investors with a partial fundamental snapshot of a company. They only represent one piece of the puzzle. Remember that, while financial statements can help investors compare several companies, comparison is limited only to the numbers provided.

In other words, you can see that one company made money while the other lost money, but you don't know which has the better technical outlook (based on analysis of the trading chart), which is a potential takeover target, which will have the best future earnings, etc...

As well, the impact of financial statements tends to be long-term as it relates to share prices. Four quarterly reports showing increasing earnings may push the stock into an upward trend as the market begins to recognize the fundamental improvements of the underlying company, but one quarter of increasing earnings may or may not have a significant impact on shares.

Therefore, most investors use financial statements as part of a greater overall decision making process. Certainly, though, an understanding of and familiarization with the data can benefit any investor who takes the time to make educated trading decisions.

Important Points

Many growth companies don't need nor are expected to have positive earnings. Instead, they generally accumulate debt as they focus on research and development of new technologies, aggressively move into new markets, fight for market share with competitors, etc... Other companies with minimal growth prospects on the other hand, have more importance placed on actual earnings, lowering operational costs, etc...

Be sure to understand what numbers are important and unimportant to a specific company based on their situation and the position they are in. This can be done easily by going to wsr.com and doing an industry comparison on the company in question. Do companies in the same industry seem to have positive earnings, or is the focus on growth, research, etc... Are they a larger or smaller company than the industry average, and are they growing faster than the others?

Read the fine print to make sure the numbers you are reading have been audited, rather than being just company estimates, or unverified results. This generally is not something you need to worry about with most exchange-listed companies, but it is important practice.

Many annual statements will begin with positive news about sales or revenue increases, or other positive comments, but further reading reveals that the company actually lost more money, increased debt, or had a poor quarter or year. For most companies their financial statements are part of their promotional material and they need to make the information sound as impressive and positive as possible, even if the overall results were disappointing.

Be wary of one-time earnings or loses. For example, a company may win a huge lawsuit settlement and the influx of money gives them positive earnings for the quarter. However, how would they have done when the one-time extraordinary is ignored?

TITLE OF LOAN

A car title loan, or simply title loan, is a loan where the borrower provides their car title as collateral for a loan.

These loans are typically short-term, and tend to carry higher interest rates than other sources of credit. These loans have higher interest rates than other sources of credit due to the fact that the lender typically does not check credit and that the only consideration for the loan is the value and condition of the vehicle.

Most title loans can be acquired in 15 minutes or less on loan amounts as little as $100. Most other financial institutions will not loan under $1000 to someone without any credit as they deem these not profitable and too risky. In addition to verifying the borrower's collateral, many lenders verify that the borrower is employed or has some other source of regular income. The lenders do not generally consider the borrower's credit score. The loan is secured by the title to the vehicle.

Process

The maximum amount of the loan is determined by the collateral. Typical lenders will offer up to 50% of the car's resale value, though some will go higher. The borrower must hold clear title to the car; this means that the car must be paid in full with no liens or current financing.

Depending on the state where the lender is located, interest rates typically range from 36% to as high as 651.79% (APR). Payment schedules vary but at the very least the borrower has to pay the interest due at each due date. At the end of the term of the loan, the full outstanding amount may be due in a single payment. If the borrower is unable to repay the loan at this time, then they can roll the balance over, and take out a new title loan. Government regulation often limits the total number of times that a borrower can roll the loan over, so that they do not remain perpetually in debt.

Regulation

There has been new regulation that will take for title loans in Illinois.

*A $4,000 limit on car title loans.

*Restrictions on loans of any amount that would result in monthly payments exceeding 50 percent of the consumers' gross monthly income.

*It will be prohibited for lenders to give loans with balloon payments, thus allowing consumers to repay the loan in equal installments - much like traditional car loans.

*Car title loans can be refinanced, but only if the principal on the loan has been paid down by at least 20 percent.

*Illinois title loans that are refinanced cannot exceed the total outstanding on the original loan.

*The state of Illinois will create a statewide database of current title loans. This is an effort to enforce the above regulations.

*Title loan companies operating in Illinois will be enforced to provide consumers with pamphlets from the Illinois Department of Financial and Professional Regulation outlining options for debt management as well as debtors' rights and responsibilities.

California existing regulations.

*Above $2,500 the rate cap is exempt. Essentially, it's what the lender and borrower agree on.
*Customer must show ability to pay.
*Fully amortized loans.
*Maximum $75 loan processing fee for loans up to $5000, no maximum for loans above.

SECURED LOAN

meaning

A secured loan is a loan in which the borrower pledges some asset (e.g. a car or property) as collateral for the loan, which then becomes a secured debt owed to the creditor who gives the loan. The debt is thus secured against the collateral — in the event that the borrower defaults, the creditor takes possession of the asset used as collateral and may sell it to satisfy the debt by regaining the amount originally lent to the borrower. From the creditor's perspective this is a category of debt in which a lender has been granted a portion of the bundle of rights to specified property. The opposite of secured debt/loan is unsecured debt, which is not connected to any specific piece of property and instead the creditor may satisfy the debt against the borrower rather than just the borrower's collateral.

Purpose

There are two purposes for a loan secured by debt. In the first purpose, by extending the loan through securing the debt, the creditor is relieved of most of the financial risks involved because it allows the creditor to take the property in the event that the debt is not properly repaid. In exchange, this permits the second purpose where the debtors may receive loans on more favorable terms than that available for unsecured debt, or to be extended credit under circumstances when credit under terms of unsecured debt would not be extended at all. The creditor may offer a loan with attractive interest rates and repayment periods for the secured debt.

Types

.A mortgage loan is a secured loan in which the collateral is property, such as a home.

.A nonrecourse loan is a secured loan where the collateral is the only security or claim the creditor has against the borrower, and the creditor has no further recourse against the borrower for any deficiency remaining after foreclosure against the property.

.A foreclosure is a legal process in which mortgaged property is sold to pay the debt of the defaulting borrower.

.A repossession is a process in which property, such as a car, is taken back by the creditor when the borrower does not make payments due on the property. Depending on the jurisdiction, it may or may not require a court order.

United States Law of Debt Secured by Property

In the case of real estate, the most common form of secured debt is the lien. Liens may either be voluntarily created, as with a mortgage, or involuntarily created, such as a mechanics lien. A mortgage may only be created with the express consent of the title owner, without regard to other facts of the situation. In contrast, the primary condition required to create a mechanics lien is that real estate is somehow improved through the work or materials provided by the person filing a mechanics lien. Although the rules are complex, consent of the title owner to the mechanics lien itself is not required.
In the case of personal property, the most common procedure for securing the debt is described through the Uniform Commercial Code or UCC. This statute provides a system of forms and public filing of documents by which the creditor's interest in the property is made known.
In the event that the underlying debt is not properly paid, the creditor may decide to foreclose the interest in order to take the property. Generally, the law that allows the secured debt to be made also provides a procedure whereby the property will be sold at public auction, or through some other means of sale. The law commonly also provides a right of redemption, whereby a debtor may arrange for late payment of the debt but keep the property.

How to create secured debt

Debt can become secured by a contractual agreement, statutory lien, or judgment lien. Contractual agreements can be secured by either a Purchase Money Security Interest (PMSI) loan, where the creditor takes a security interest in the items purchased (i.e. vehicle, furniture, electronics); or, a Non-Purchase Money Security Interest (NPMSI) loan, where the creditor takes a security interest in items that the debtor already owns.

LOAN

definition

- an amount of money given to somebody on the condition that it will be paid back later.

- the act of letting somebody use something temporarily.

- to allow somebody to borrow something on the condition that it is returned.

- being lent or borrowed.

- working at a temporary location because additional help or expertise is needed there.

- the act of lending; a grant of the temporary use of something: the loan of a book.

- something lent or furnished on condition of being returned , esp. a sum of money lent at interest: a 1000loan at 10 percent interest.

- loanward

- on loan

- borrowed for temporary use: How many books can i have on loan from the library at home?

- temporarily provided or released by one's regular employer, superior, or owner for use by another. Our best actor is on loan to another movie studio for two films.

- to lend money at interest.

loan or lend?

If you are letting somebody else temporarily use physical property or money of yours, it is quite acceptable, especially in less formal contexts, to use the verb loan, as in I loaned him some lunch money. In more formal settings lend is by far the safer choice: According to the terms of this agreement, we will lend you the stipulated amount of cash. The verb loan can be used only with reference to the temporary lending of physical property or assets. If the context is not literal or physical, lend is the only choice: The evidence lends credence to the witness's previous testimony.The subtle use of strings lends fluidity to the composition.

unsecured loan

An unsecured loan is a loan that is not backed by collateral. Also known as a signature loan or personal loan.
Unsecured loans are based solely upon the borrower's credit rating. As a result, they are often much more difficult to get than a secured loan, which also factors in the borrower's income. An unsecured loan is considered much cheaper and carries less risk to the borrower.[citation needed] However, when an unsecured loan is granted, it does not necessarily have to be based on a credit score. For example, if your friend lends you money without any collateral, meaning something of worth that can be repossessed if the loan isn't repaid, then your credit score has zero to do with it, but rather the value of your friendship is at stake. Therefore the real meaning of an unsecured loan is that it is not backed by any object of value and is lent to you based on your good name. For financial institutional purposes, they may want to look at your credit score because they are not your friend and it is strictly a business transaction, therefore your good name may be associated with your historical payment history on prior debt, reflecting in your credit score.

Types of unsecured loans

There are three types of unsecured loans.

- First there is a personal unsecured loan, meaning a loan that you individually are responsible for the repayment of.

- Second is an unsecured business loan which leaves the business responsible for the repayment.

- Finally there is an unsecured business loan with a personal guarantee. With the latter, although the borrower is the business, you as an individual will be the payer of last resort if the business defaults on the loan

Lending decision criteria

Since unsecured loans are not secured against property or any asset, it is more difficult for a lender to get their money back if the borrower does not or cannot repay the loan.
Because of this increased 'risk' (compared to secured loans) unsecured lenders tend to have stricter underwriting rules. In particular, lenders will look at the potential borrower's credit history and how they have conducted their previous and current credit or loan accounts.
In summary the lender has to decide, based on their borrower's credit history, how likely are they to repay the loan. If the risk is too high, the borrower will be declined for the loan. If the risk is acceptable, then the lender will (subject to other minimum requirements) make a loan offer.

Rate determination

Assuming a loan offer is made, the actual APR will normally depend on two things, the loan amount and that level of risk. Generally speaking, the higher the loan amount the lower the APR will be. In terms of the level of risk, the higher the risk the higher the APR lenders will charge - this is known in the loan industry as rate-for-risk.

FINANCE

insurance

Knowing the best insurance company ratings is integral to buying the best possible policies to cover your health, auto and life. It?s not always the cheapest rate that will garner the best policy. Of course we?d all like to spend less money on the necessities of life and more on the fun things but attention needs to be given to the qualifications of the companies and the adequacy of the coverage being supplied.

What Do Rating Companies Look For?

There are three major companies or services that are in the business of rating insurance companies. Independent rating agencies, these financial analysts make sure that the insuring company is financially sound and will be able to reliably meet its obligations when claims are filed. The rating process measures each company?s overall strengths, evaluating ability to pay dividends, meet liabilities and, acting in the role of prophet, projects the company?s future business prospects.

1. A.M. Best Company

Is the best known and most widely recognized of these rating companies. Publishing over fifty information products to do with insurance companies and the insurance industry they are experts in their field. An insurance company deserving of a A++ from A.M. Best Company has shown superior performance and ?has a very strong ability to meet its obligations to policyholders over a long period of time. Their grading system covers the gamut of possibilities rounding out with an F which signifies that the company in question has been placed under an order of liquidation by the courts.

2. Standard and Poor?s

Is a well recognized name with a reputation inspiring confidence in its judgments. S & P ranks the claim-paying abilities of over 300 insurance organizations worldwide in addition to its other more widely recognized data monitoring. They grant a superior company, one able to reliably meet its financial obligations the rating of AAA. Their lowest form of rating is an R and warns the consumer that the company in question is under regulatory action.

3. Moody?s or Moody?s Ratings

Began ranking the economic viability of financial various institutions in 1909. They do not deem a company to be superior but their highest vote of confidence in the form of an Aa is given to that insurer who they find displays exceptional financial security. C is the lowest rating given and denotes a company that displays poor changes of financial security.

Types of insurance

Any risk that can be quantified probably has a type of insurance to protect it.
Among the different types of insurance are:

Automobile insurance, also known as auto insurance, car insurance is probably the most common form of insurance and may cover both legal liability claims against the driver and loss of or damage to the vehicle itself. Casualty insurance insures against accidents, not necessarily tied to any specific property. Health insurance covers medical bills incurred because of sickness or accidents. Liability insurance covers legal claims against the insured. For example, a home owner's insurance policy provides the insured with protection in the event of a claim brought by someone who slips and falls on the property, and brings a lawsuit for her injuries. Life insurance provides a cash benefit to a decedent's family or other designated beneficiary, and may specifically provide for burial, funeral and other final expenses. Annuities provide a stream of payments and are generally classified as insurance because they are issued by insurance companies and regulated as insurance. Pet Insurance insures pets against accidents and illnesses - some companies cover routine/wellness care and burial, as well. Title insurance provides a guarantee that title to real property is vested in the purchaser and/or mortgagee, free and clear of liens or encumbrances. Travel insurance is an insurance cover taken by those who travel abroad, which covers certain losses such as medical expenses, lost of personal belongings, travel delay, personal liabilities.. etc. Workers' compensation insurance replaces all or part of a worker's wages lost and accompanying medical expense incurred due to a job-related injury.

HOTEL

meaning

1. A house for entertaining strangers or travelers; an inn or public house, of the better class.

2.In France, the mansion or town residence of a person of rank or wealth.

3.A building where travelers can pay for lodging and meals and other services.

4. A house that rents furnished apartments or suites for housekeeping, on a weekly or more permanent basis, and usually supplies all hotel services.

5. A place in which people receiving welfare assistance are temporarily housed until permanent quarters become available.

6. A hotel is an establishment that provides lodging on a short-term basis. Hotels often provide a number of additional guest services such as a restaurant, a swimming pool, child care. Some hotels have conference services and encourage groups to hold conventions and meetings at their locations.

7. A building that houses both a hotel and a casino.

8. A business establishment that combines a casino and a hotel.

hotel

-To dream of living in a hotel, denotes ease and profit.

-To visit women in a hotel, your life will be rather on a dissolute order.

-To dream of seeing a fine hotel, indicates wealth and travel.

-If you dream that you are the proprietor of a hotel, you will earn all the fortune you will ever
possess.

-To work in a hotel, you could find a more remunerative employment than what you have.

-To dream of hunting a hotel, you will be baffled in your search for wealth and happiness.

FASHION

definition

-The make or form of anything; the style, shape, appearance, or mode of structure; pattern, model; as, the fashion of the ark, of a cost, of a house, of an altar, etc.; workmanship; execution.

-The prevailing mode or style, especially of dress; custom or conventional usage in respect of dress, behavior, etiquette, etc.; particularly, the mode or style usual among persons of good breeding; as, to dress, dance, sing, ride, etc, in the fashion.

- Polite, fashionable, or genteel life; social position; good breeding; as; men of fashion.


- Mode of action; method of conduct; manner; custom; sort; way.

-To form; to give shape or figure to; to mold.

-To fit; to adapt; to accommodate; with to.

-To make according to the rule prescribed by custom.

- To forge or counterfeit.

-characteristic or habitual practice

- how something is done or how it happens; "her dignified manner"; "his rapid manner of talking"; "their nomadic mode of existence"; "in the characteristic New York style"; "a lonely way of life"; "in an abrasive fashion".

- The latest and most admired style in clothes and cosmetics and behavior.

- make out of components (often in an improvising manner); "She fashioned a tent out of a sheet and a few sticks".


minor definition

1. To form; to give shape or figure to; to mold.
2. To make according to the rule prescribed by custom.
3. To forge or counterfeit.
4. To fit; to adapt; to accommodate; -- with to.
5. Mode of action; method of conduct; manner; custom; sort; way.
6. The prevailing mode or style, especially of dress; custom or conventional usage in respect of dress, behavior, etiquette, etc.; particularly, the mode or style usual among persons of good breeding; as, to dress, dance, sing, ride, etc., in the fashion.
7. The make or form of anything; the style, shape, appearance, or mode of structure; pattern, model; as, the fashion of the ark, of a coat, of a house, of an altar, etc.; workmanship; execution.
8. Polite, fashionable, or genteel life; social position; good breeding; as, men of fashion.
9. a prevailing custom or style of dress, etiquette, socializing, etc.: the latest fashion in dresses.
10. conventional usage in dress, manners, etc., esp. of polite society, or conformity to it: the dictates of fashion; to be out of fashion.
11. manner; way; mode: in a warlike fashion.
12. the make or form of anything: He liked the fashion of the simple, sturdy furniture.
13. a kind; sort: All fashions of people make up the world.
14. Obs.workmanship.
15. Obs.act or process of making.
16. after or in a fashion, in some manner or other or to some extent; in a makeshift, unskillful, or unsatisfactory way: He's an artist after a fashion.
17. to give a particular shape or form to; make: The cavemen fashioned tools from stones.
18. to accommodate; adjust; adapt: doctrines fashioned to the varying hour.
19. Shipbuilding.to bend (a plate) without preheating.
20. Obs.to contrive; manage.