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**MENTORSHIP - Fundamentals - Company fundamentals - Fundamental accounts …
**MENTORSHIP - Fundamentals - Company fundamentals - Fundamental accounts
To analyse a company or its management, we need to get quantitative data from the company.
But as retailers we have lesser access to data about a company vs real money. So we will follow real money in Market Profile and Orderflow along with technicals.
But we will use whatever data is available from fundamentals and make optimal use of it.
What is the data available to retailers? It is the public data that the companies give to exchanges due to regulatory compulsion. That is only our source.
What are these sources of public data?
Financial data form companies comes in three parts: (a) Profit and Loss (P&L) Account; (b) Balance Sheet (BS) Account; (c) Cash Flow Statement (CFS).
The P&L account is published four times in a financial year (April to March). It comes out after every quarter - i.e., Q1 (April to June), Q2 (July to September), Q3 (October to December) and Q4 (January to March).
In the last quarter, companies generally announce annual results also. In the second quarter, they release half-yearly results also.
The P&L account has huge communicative value for traders and other market participants because it is the most released data from a company.
The BS account is released twice in a year, during half years. One after September along with Q2 results, and the other after annual results, along with Q4.
The CFS is released only once during a financial year, along with annual results. So it has the least communicative value for traders but most value for investors.
Now we have to analyse the P&L account, BS account and CFS for understanding the company and performance of its management.
If we analyse all the three statements or each of these and find a way to analyse management performance, we are almost near in understanding the company's true worth to invest or trade.
How are we going to analyse these financial statements or data?
What is a profit and loss account?
Any task that a company takes always results into a financial transaction. Even if it means a cup of tea given to its employee to boost his productivity.
There are only two ways a financial transaction can occur. Either they can bring in money or they can take out money.
Some transactions bring money into the company and some take money out of the company.
Those that bring money into the company can be revenue or liabilities.
Those that take money out of the company can be expenses or assets.
A P&L account houses the revenue and expenses. While a BS account houses the assets and liabilities.
Each financial transaction in a company affects two books of accounts simultaneously.