Facts in the Balance Sheet

This entry is not for the business students... Why I say so? It's probably something many business students SHOULD know.

I actually did study this whole accounting and finance thing during my Diploma for a year. Honestly, it's been years since I last take a look at it and when I started looking at it again, everything was a blur. I really can't remember crap.

So what's a balance sheet? A balance sheet is basically a summary of all the company's assets (what the company owns) and liabilities (what the company owes). A balance sheet usually gives one year worth of information.

Things you may find under Assets (What the company owns)

• Cash - Cash is the most liquid asset a company may possess. As much as you may think that having cash in the company's bank is a total waste of potential investments/income, you might just be wrong. Some companies maintain their cash reserves to earn extra cash in the money market funds, and some use them to pay outstanding loans that are soon to come.
• Accounts Receivable - Accounts receivable refers to money that is owed to the company. For example, if I purchase a washing machine from Courts at $200 and I have yet to pay for it, this sum will be recorded in the "Accounts Receivable" section of the balance sheet. Be weary of firms that has too high "Accounts Receivable" for they may not be able to return outstanding loans in time, despite the fact they have great amount of sales. Try analysing the company should this figure be too absurd.
• Investments - Just like our personal investments, some companies have investments too!
• Property and Equipment - This is the least liquid of all assets. Should the company be in a sudden need of money,  property and equipment takes a longer time to sell and liquidify (unlike investments and cash). Equipment depreciates over time and this is calculated as part of the cost of doing business each year. Depreciation is subtracted from the value of the equipment and reflected in the balance sheet.

Things you may find under Liabilities (What the company owes)

• Accounts payable - Accounts payable refers to the money that the company owes other firm/people when they place orders to purchase things. The "time lag" between recieving the bill and paying for it is called accounts payable. As much as companies with high accounts payable may seem like a worrying issue, this may also mean that the company is great with their financial management by taking a longer time to pay their bills. The longer time they take to pay their bills, the more money they have to increase revenue.
• Accrued compensation - This refers to the money that the company owes their employees. E.g. pension money which the company has to pay their employees someday.
• Income taxes payable - This refers to the taxes the company has to pay for its business.
• Dividends payable - Not all firms pay dividends, but those that do has to set aside money to pay dividends to their shareholders (like you and me!)

Equity
Equity is the difference between a company's assets and liabilities. It is what keeps the balanced sheet.... balanced!

Therefore.

Assets = Liabilities + Equity!

*it's really hard to put a balance sheet in words.. Find an example and the terms should be similar to the ones I have stated here.

What is Price/Earning Ratio?

I've seen this in MANY reports.. p/e ratio for short.. had no idea what is it, I usually just ignore it.
Laziness is my bad habit, time to take a step forward and forcing myself to believe that "ignorant is NOT bliss".

So let's have a scenario (I love scenarios...and analogies... and story-telling. People who know me well enough will know that).

There are two companies selling televisions- Firm A and Firm B. Firm A has it's stocks priced at $50 per share and Firm B has it's stocks priced at $100 per share. Does this means that Firm B would be a better buy?

Well after doing some research, I learnt that price/earning ratio will help answer that question!

So what is p/e ratio?
P/e ratio determines the stock price per share relative to the annual earnings per share. Faster-growing and more-profitable companies generally has higher p/e ratios. P/e ratio helps to compare the price of a stock to the company's profits per share or the overall market's price level to overall corporate profits.

Below is the formula to calculate p/e ratio (most sites usually calculates this already.)


SP/AE = p/e ratio

SP = Stock price per share
AE= Annual earnings per share (this can be derived from taking the total annual earnings divided by the total number of stocks issued)

A Simple Formula for Foreign Shares

Thinking of pumping SGD14,000 on a USD20 stock? How many can I buy?

I came up with this simple formula, just sub in the details.


[(PA/PFC)-brokerage charge]/PS = number of foreign stocks you can buy.

PA= Principal Amount in SGD
PFC= Price of Foreign currency against SGD
Brokerage Charge= must be already in foreign currency
PS= Price of stock in foreign currency


Therefore If you have $14k, and the price of the USD against SGD is 1.4, and your brokerage charge is USD40, and your stock cost USD20 each, this is how it should work out.

[(14,000/1.4)- 40] / 20 = 498.

Thus with $14,000 SGD, you will be able to buy 498 stocks worth $20 USD each with a brokerage charge of $40.

Hope this helps!

How to Start Trading.

Hello everyone! A friend of mine was speaking to me about stocks recently (if it was really anything else, it wouldn't be here. haha). He mentioned I should blog about "How to start trading." Strangely that topic never hit my thoughts once, but here it is then!

Starting a trading account really isn't that difficult! In most cases, even free!

First, before you start trading, allow me to recommend a series of videos from SGX website(in case you're still caught in a blur with acronyms, it's Singapore Stock Exchange). I actually found the SGX Investor Guide a little useful if you're completely new. Trust me, it's a little boring at first, but just swallow it. Bad tasting medicine doesn't mean it doesn't help.

Well you must be convinced to invest if you have read my blog to date. Now you need a broker to manage your buyings and sellings. There are many brokers you may use. Do check out the list of brokers from the SGX website. Alternatively, you may simply click the link Directories of Securities Members in Singapore.

I am currently a member of ONE of the securities firm listed. I think I should not mention the name to not advertise or be bias against any other firms.

Photo courtesy of http://www.flickr.com/photos/jmoffat/3809167123/ 

What's Brokerage Charge?

Simply, the sum of money that brokers charge you when you buy/sell stocks. Currently I'm paying $25 or 0.28% whichever is higher for trade (For SGX only). This price is correct as of this date. Well, do your sums and predictions well. If you trade $2k once, it's $25. If you trade $2k on two separate dates (i.e. $1k on Monday, $1 on Tuesday), you'll be paying $50 of brokerage charges! This will probably eat into your dividends or you probably have to wait for your share price to go even higher to make a profit. Plan well before you click "buy!"

Am I only allowed to trade SGX by using the securities firm given on the SGX web site?

Depending on the firm, most firms allow you to trade foreign shares like US as well.

So what is the minimum number of shares do I have to buy?
If you are planning to trade in SGX, the minimum require to buy is 1 lot. This equates to 1,000 shares. Therefore, if the stock cost $1SGD, you have to purchase $1,000SGD worth of stocks.

Oh talking about US shares, they're so expensive! and they're in USD! How does a small investor like me buy?
No worries! The US market do not require you to buy shares in lots. You can buy 5 to 10 of its shares. Well then again, it doesn't make any sense to buy $50 worth of US shares and pay brokerage charge of $40USD just to buy it (Firms may charge differently for US market). Again, planning. Know what stocks are of potential VALUE. Expensive doesn't mean it's the best. (Typical Singaporean mind set.. paying more means better!)

So how to buy and sell?
Depending on the firm, some firms require to call them up directly and some have an online system whereby you may do your trading online. For example Phillips Securities.

Must I pay to start an account?
Again, depending on the firm, some firms require an initial deposit of maybe $1,000. This is to prevent people from randomly opening accounts that are not active. Generally most firms do not require a deposit from you.

After I got an account, who else can help me?
Different types of account provides different services. Some advisory accounts provide you with advices, with a price of course (nothing comes free). You may also be interested in attending seminars conducted by SGX Academy SGX Academy Site. Some securities firm also conduct their own seminars, you may take a look at their websites.

Most importantly friend, have fun.

What is S&P500?

As I began following the stock market, I begin to realise many stocks are in reference to S&P500.

Courtesy of fool.com

So what in the world IS S&P500? This really bugged me. Every US stock I monitored had that irritating line that defines itself as S&P500.

After some research, I understood that S&P500 is in short for Standard & Poor 500. That didn't really help, I just had more "huhs?"

Well here it goes then.

S&P500 is used as a bench mark for US share prices. It is made up of 500 different companies each with diffferent liquidity, size and sector. To put it simply, it's the average price you would pay if you would buy shares from all 500 different companies.

Bet you didn't know that...

The word "poor" in Standard & Poor doesn't literally mean "poor" from the dictionary. It was created by Henry Varnum Poor and the Standard Statistics Bureau. Hence the name, Standard & Poor.