Investment 101: How to Read a Balance Sheet

Author (s): Nicholas Foo, Gan Wei Han

Invest Academy Session 4 | 19th October 2017 | LT-6

Invest Academy Session 4: How to read a Balance Sheet

“Investing in knowledge pays the best interest.” Making an investment can be tough because much financial knowledge is required to evaluate the risks and rewards. Many are too afraid to step into the world of investing, fearing to lose their hard-earned money or not even knowing where to start. Therefore, Invest Academy Session 4 aims to solve this problem by equipping the audience with basic financial knowledge for them to make good investment decisions.

 

The session kick-started on 19th October 2017 with a great round of applause to the guest speaker, Mr. Stanley Lim. Stanley is a Chartered Financial Analyst, the co-founder of ValueInvestAsia.com and a freelance contributor to The Motley Fool. The lecture theatre was filled with enthusiastic soon-to-be investors from the IIC club. This week, Stanley taught us about searching for the perfect stock to invest in. The key to smart investing, he said, is “building a system of stocks instead of individual stocks”. Patience and perseverance are also invaluable assets when investing.

 

The primary focus of this session was to teach us how to properly read and interpret a balance sheet. The contents, including the income statement and cash flow statement, can directly reflect the financial situation of the company at a given time. To further exemplify their importance, Stanley also brought many formal annual reports from different countries for us to inspect. To compare and contrast, Stanley selected four companies, namely CapitaLand, Frasers Centrepoint, Singapore Exchange and Singapore Press Holdings. He explained that different ratios and margins have different meanings. Another important aspect is the cash conversion cycle, which basically means the number of days it takes for money to cycle around the company, its investors and suppliers. It would not be wise to invest in a company with a very slow cash conversion cycle as the money will return to the investor slower than anticipated.

 

Stanley continued by introducing the Warren Buffett Way, which is essentially a method used to evaluate whether a project or company is worth investing in. Start by asking yourself questions. Is the annual report of the company clear and understandable? Has the company been profitable throughout its operation history? Is there a favourable long-term prospect for the company? If most of your replies are positive, then you are essentially doing a safe investment. On the other hand, if your answers are vague or negative, then it is better to think twice before investing and to put your money into other more profitable projects.

 

Moreover, Stanley was very keen on getting us involved in the session, so he gave us a short online quiz to test our knowledge. The winner got a fabulous prize from Stanley. In the end, everyone got something from the session, be it tips and tricks to investing, a chance to connect with fellow IIC friends or even just a sandwich exclusively prepared by the IIC committee!

 

All in all, Invest Academy 4 went smoothly and successfully. However, do bear in mind that this session is just one of 3 interdependent seminar sessions. To get the most out of it, everyone is strongly encouraged to attend all 3 sessions. You will not regret it.

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