When you're looking at a company's balance sheet, it's probable that you'll run into terms that you've never heard of before. And you may be wondering, what does a balance sheet even do? It reports the balances of all permanent accounts at the end of the accounting period. What the company owns are the assets, what it owes are its liabilities and what its worth is its stockholders' equity.
Ratio analyses are evaluations that go beyond looking at just a company's assets, liabilities or equity. The terms listed below evaluate relationships between various amounts in a financial statement. Return on Sales: Found by dividing Net Income by Revenue. For example, $1150/$2650 = .43. This means that $0.43 from every dollar of sales is profit. Obviously the higher the return on sales, the more profitable the company is. Keep in mind the industry of the company you are evaluating. Some industries have a lower average return on sales, just by nature of the products sold. What you should be looking for is a company that outperforms relative to others in the industry. Working Capital: Found by subtracting Current Liabilities from Current Assets. This shows the "excess" money that company holds to continue operations, make acquisitions, etc. Current Ratio: Found by dividing Current assets by Current Liabilities. This ratio shows the company's ability to pay its current debts. A ratio of 2:1 is preferable. Quick ratio: Found by adding Cash and Receivables, then dividing the sum by Current Liabilities. A ratio of 1:1 shows adequate debt coverage.
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Have you ever wondered how you can invest in companies before they go public? I'm not talking about getting in the day before, but years before. Thanks to new legislation, anyone can invest in private companies. Beginning today, June 19, 2015, the SEC is allowing companies to do "Mini IPOs," which allows companies to raise up to $50 million, instead of the previous limit of $5 million.
Under previous regulations, only accredited investors could legally invest in private companies. To be an accredited investor, the person must have one of two criteria: earn more than $200,000 per year, or have a net worth of more than $1 million (not including their primary residence). To regulate the authenticity of the companies that want to partake in these "Mini IPOs," which are, in essence, larger-scale crowd funding initiatives, the SEC requires that a company must have at least 2 years of audited financials. The SEC reviews these records along with the company's business plan, which ensures that investors know exactly what they're buying in to. This new market also allows businesses to test the interest of their company, and can help them decide whether or not they should go public.
The major company that connects private companies with investors is SeedInvest. Pay their website a visit if you're interested in learning more about the new regulations and how their site can help you put your money to work.
This Name Still Has Upside After a 1,233% Run |