Previously I had written about looking at the Balance Sheet of public-listed companies through the easy-to-interpret Financial Structure Chart (FSC). If you missed that article, here is the link again:
In this article, we will continue by spotting the trends presented by FSC. In accounting, Balance Sheet or the Financial Position represent only a specific date. It is like looking at one photo of an event. Imagine you are watching a movie. The screen keeps changing many times per second. If you capture an image of the film, you don’t know the story. But what if you observe the photos captured every 5 minutes, you kind of know a little more of what happens in the story. To know the full motion picture, you look at the photographs at different timing.
Similarly, you can know more about the financial health of a company by observing the difference presented by the FSC at different years. So the Balance Sheet of Apple company on 29 Sept 2019 is just a snapshot of the equity, assets and liabilities on that day. You want to compare the present Balance Sheet with the past reports. What is the situation in 2018, 2017, 2016, and so on? You can get to know the changes as frequent as every quarter since all public companies need to announce their financial positions every three months.
Fortunately, with the FSC presented automatically in the Pentaip platform, based on the past financial reporting years, you can look for the anomaly just by clicking on the year-buttons.
Take a look at Apple from 2015-2019:
In proportion, Total Equity is getting less (not the absolute amount, but the relationship to the portion of liabilities). Current assets rise compared to Long Term Assets. Overall, there is slight changes but stable.
Below is the Balance Sheets of UPS from 2013-2018:
Due to the boom of e-commerce, UPS has to take on more debts to invest in operation expansions. Since 2013, you can notice that the relative portion of Equity has been shrinking due to the increasing debts.
Next, take a look at T. Rowe Price, which manages nearly $1 trillion across various investment products, including mutual funds, target-date funds, and other actively managed accounts, mostly American’s retirement funds.
Notice that the business has no debt at all. And in 2016 there is something called “others” appearing above the Total Equity. If you want to find out what’s that, do a quick check on their 2016 Annual Report.
There is a new item called redeemable non-controlling interests of $687.2 million
In conclusion, you now have an easier way to comprehend the many digits of numbers presented in financial reports. When you find anything that’s out of the usual, you can then dig further by searching through the relevant financial statement.
Stay tuned for next guide where I’ll show you the other blocks presented in the 3rd & 4th column of the Financial Structure Chart. What are those, and how do you extract useful information?
To learn more in-depth about this topic, check out the webinar recording featuring the founder of Pentaip, Mr Yeong Ning:
How to Qualify Good Stocks through Financial Structure Charts
Chinese Version
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