If an investor buys shares of a company whose profits have been deteriorating over the years then it is likely that the impact of the falling profits will also be reflected in the price of its shares. This will erode the value of the company’s shares and the investment will result in losses. For this reason a careful analysis of the financial statements is a must before taking a long position in the shares of the company.
The investors must make investments from long term point of view as this gives them the power to exercise control over their investments. An intelligent investor must not focus on the short term movements in the market rather one should concentrate on intelligent selection (Bogle & Swensen, 2009, pp.40). Ideally the return on a long term investment should be 7% (Campbell et al., 2001). Stocks generally offer best possible returns over the long term (Bodnar, 2006, pp.121).
For the period 1926 to 1998 the common stocks of large companies offered an annual return of 11.2 percent. When compared with other instruments it shows that the stocks offered a risk premium of 7.2 percent annually. Even though the returns earned on large cap and small cap stocks is higher as compared to other assets classes their returns are more volatile. The return on long term bonds issued by US government is 5.3 percent per year i.e. a real return of 2.2 percent. Though the returns on such bonds are less as compared to the stocks but their returns are comparatively less volatile when compared to volatility in stock returns (Reilly & Brown, 2002, pp.92).
The financial statements comprise of- Income Statement, Cash flow Statement and Balance Sheet. Income Statement is an estimation of the profits incurred or losses suffered by the business over a specified period of time. Cash Flow Statement is a summary of the net cash position of the business. Balance Sheet is a summarized statement of the assets owned by the business and the liabilities owed by it. Using these
This is done to assess the performance of the company i.e. whether the company is generating sufficient returns for its investors; if it is sound enough to take care of its financial obligations; if it…
My children’s future also needs to be cared for as they grow to become independent people in the society. Therefore, I would like to save close to $1 million for my children before I retire. I also need to invest in long-term strategy that will have me save and invest at the same time.
Liquidity has two dimensions. Ease of conversion versus loss of value. Any asset can be converted into cash if its price is cut sufficiently. A highly liquid asset is therefore one that can be sold without significant loss of value. An illiquid asset is one that cannot be quickly converted into cash without a substantial price reduction.
They are vulnerable to action from many forces that could well cause them to decline in value. Today, an increasing number of Americans are indulging in investment in the securities industry for help in achieving various targets like buying
They are the accounts or activities found on the income statement, by adding all the money gotten from the customers minus the monthly expenses.
The investing activities are those amounts generated by a company’s
The author states that the amounts for the assets are reported in accordance to prevailing average rates that were obtained from current market trends, such as land, building, etc. The tax expenses that reported are in the financial statement are based on the average taxations policy of the country that is subjected to change in times to come.
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