The hottest Financial Statements Substack posts right now

A balance sheet shows what a company owns and owes.
Assets, liabilities, and shareholders equity are the three main components of a balance sheet.
Interest coverage and net debt / free cash flow are important ratios to analyze a balance sheet.

Understanding the companies you invest in is crucial.
Reading a 10-K provides all the necessary information about a stock.
A 10-K is an official document that includes sections on business, risk factors, financial statements, and management discussions.

Analyzing income statements is crucial for making good investment decisions.
Income statements show company revenue, expenses, and profitability.
Key metrics like gross profit, net income, and profit margin help investors understand company performance.

Incentives play a powerful role in driving behavior and decisions.
Poorly structured incentives can lead to suboptimal decision-making and outcomes.
Understanding the incentive systems of companies is crucial for investors to assess potential value creation.

Presto Automation (PRST-US) is a loss-making, debt-ridden company that is struggling and may not survive without external financing.
The company's core business of selling touch-screen tablets to restaurants is not profitable and faces challenges from cheaper alternatives like QR codes.
Despite touting itself as an AI company, Presto's AI products are white-labeled and its financial situation is concerning, with high debt, low cash, and burning through cash at a fast rate.

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Simpson's paradox teaches us that aggregate metrics can lead to wrong conclusions when not considering the composition of the aggregate.
A common construction of churn metrics can be misleading; decreasing aggregate churn rate may not always mean the revenue base quality is improving, and sudden increases can be due to new customers rather than a decline in quality.
Churn paradox occurs when fixed-period aggregate churn rates ignore the sizes of customer acquisition cohorts, leading to skewed conclusions about customer retention and revenue base.

Parent company statements show only the parent’s results, while consolidated statements combine both the parent and its subsidiaries' financials. This can affect how investors view a company's worth.
Consolidated statements leave out transactions between the parent and subsidiaries, giving a clearer picture of overall performance. This means some revenues might be excluded, which can look different from parent-only reports.
When valuing a company, using parent company statements allows for flexibility across different businesses, while consolidated statements are helpful for understanding the whole group. The choice depends on how similar the parent and subsidiaries are.

You should value a company in the currency that is easiest for you to access information in. It shouldn't matter which currency you choose because the company's value should stay the same.
Your discount rate is influenced by the currency you select, especially the risk-free rate, which varies with inflation. Always ensure your cash flows and discount rate are in the same currency.
To avoid currency confusion, you can analyze in real terms, using real discount rates and cash flows. It's important to stick with your initial currency choice throughout the analysis.