Ways To Become Wealthy

Total Money Magnetism

Total Money Magnetism is developed by Dr. Steve G. Jones who is a clinical Hypnotherapist and Neuro-Linguistic Programming (NLP) Master Practitioner since 1980s. He was a financially weak person struggling to pay his debts, somehow perceived an unusual guidance from a friend after which he became a self-made multi-millionaire, featured in Forbes magazine, People magazine and a lot of articles and radio interviews, and his clients include Hollywood celebrities, directors, CEOs, executives, and sports athletes. That guidance was 6 step secret method to develop a millionaire's brain which he explains in detail on this online interface. Actually, a poor person's brain is stuck in the same scratch while rich man's brain is well mapped and has the neural strength to always develop money making ideas. So Total Money Magnetism uses scientifically proven methods to effortlessly transform the programming of the brain to remove mental blocks, develop wealth pathways and build connections. This platform offers The Skill of Money Magnetism e-book, a valuable and inspirational audio track by Steve G. Jones himself, The Millionaire Mindset, which is an exclusive interview with many self-made millionaires, Mark Ling's 3 fastest ways to make millions online, and Platinum Millionaire Mind Makers, which are three proven and tested audio tracks to steadily and unconsciously reset your mind to become attractive to wealth. Continue reading...

Total Money Magnetism Summary


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Author: Dr. Steve G. Jones
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Highly Recommended

Recently several visitors of blog have asked me about this book, which is being advertised quite widely across the Internet. So I decided to buy a copy myself to find out what all the fuss was about.

This book served its purpose to the maximum level. I am glad that I purchased it. If you are interested in this field, this is a must have.

The Financial Planning Process

Personal financial planning is the process through which you, along with your advisor, determine how to meet your financial goals. Financial planning distinguishes financial planners and advisors from other professional investment advisors who focus solely on individual products. 1. Understand what your financial goals are.

Trading Money to Make Money

This book will focus exclusively on foreign exchange trading for speculative purposes, or trading money with the explicit goal of making money. This speculation process is very similar to trading in stocks or futures. The goal, whether on a long-term or short-term basis, is to earn profits from price changes. Just as a stock like Microsoft will move up and down in price, currencies will also move up and down in price. The real trick is to be on the right side of the move, and to reap profits in return for assuming the risk of taking the trade. Learning how to make money by trading money is not an easy task. There are many factors that combine to make any given foreign exchange trader a successful one. This combination usually includes

Establishing A Financial Plan

Smart investors know that they must know where they are currently, what they want to accomplish, and they know that they need to have a game plan. A financial plan is just that a financial road map. A By analyzing your current situation, your advisor may find ways to help you save money and reach your goals faster than you may have known. Redirecting some of your money could help you put money away for retirement, or achieve another goal, without it seeming like you are spending any more money than you currently are. Protecting yourself from the unexpected is a vital element in financial planning. As time goes by, you change, and so do your protection needs. Having adequate protection means a number of things, such as providing for your family after your death or replacing earning power after a disability. Protection means insurance, and while many people dislike the thought of insurance, it is terribly important. long-term care, or nursing home insurance is perfect. These are people...

Is A Financial Plan Really Worth It

People neglect financial planning for a number of reasons. Feeling that they have insufficient assets or income is one reason. Another is that people feel that their finances are already taken care of, or are in good shape. While that may be true, everyone can benefit from hiring a financial advisor and having a plan. However, humans tend to procrastinate, often putting things off so long that it becomes too late. Plus, planning encompasses certain life experiences that may be unpleasant. While planning for retirement may be a positive experience, planning for a disability or death might not be. Then there is the financial cost of planning. Professional financial planners charge a fee for their services. All of these factors can be deterrents to planning. In regards to financial planning fees, these may be deductible from your federal income taxes. The current tax laws permit the deduction of expenses caused by the management or maintenance of property held for the express production...

What If I Dont Do Any Financial Planning

Having an advisor and having him prepare a financial plan for you will help keep you on track to meeting your goals. However, this is just the beginning. Your plan and advisor won't instantly make you more money, nor will they show you any get-rich-quick schemes. Things like that just don't work. But there are a few tricks of the trade to help you.

Disclosures in Financial Statements

In recent years, the number of disclosures that firms have to make about future obligations has proliferated. Consider, for instance, the case of contingent liabilities. These refer to potential liabilities that will be incurred under certain contingencies, as is the case when a firm is the defendant in a lawsuit. The general rule that has been followed is to ignore contingent liabilities which hedge against risk, since the obligations on the contingent claim will be offset8 by benefits elsewhere. In recent periods, however, significant losses borne by firms from supposedly hedged derivatives positions (such as options and futures) have led to FASB requirements that these derivatives be disclosed as part of a financial statement. In fact, pension fund and health care obligations have moved from mere footnotes to actual liabilities for firms.

Make more money by not relying on the markets

I believe it is easier to make money on the markets if it is not your main source (or hopeful source) of income. Is there anything extra you could do at work to make money for yourself Any contacts who might give you freelance work See if you can find yourself some new income. It's one of the ways to eventually quit work.

Making money in the Futures markets

We want to make it clear if you think you're going to get into the futures market and get rich off of just a few contracts overnight, think again. This is a business just like any other, and therefore must be treated like a business. If you are patient and take the time to learn from several sources, and build on that knowledge, you can become a very successful trader. That's right, a trader, not just a person who sends his money to his broker and asks him to invest it. You will learn how to invest for yourself. By being conservative and taking profits as they present themselves, you can make great returns. Just remember, making money in the futures market won't happen overnight. You will have to apply yourself, study the markets and charts, make a game plan and follow your plan consistently. You will also have to be conservative. It's a lot like a conventional retail business, where you learn all about the business, study the ins and outs and seasons, formulate a business plan, and...

The Unknown Billionaire

Steven Cohen quietly became a billionaire by managing a hedge fund that achieved spectacular returns. From 1992 through 2005, he generated for his investors an average annual return of 43.5 percent, after subtracting his 3 percent annual management fee and 50 percent share of profits.

Positive Mental Attitude Is the Most Essential Element in Achieving Success

And if you happen to be one of the many people in America who have an overly negative attitude, you are in desperate need of what is known in the Marine Corps as an attitude adjustment. In simple terms, an attitude adjustment involves changing or adjusting your outlook on life, from that of a skeptical pessimist looking for nothing but the worst, to an open-minded optimist, who focuses on the reward instead of the risk. This does not mean that you ignore risks it simply means that you no longer let them stop you from achieving success.

Do You Deserve To Make Money

This is very different than trading the markets. Most of us are brought up with ideas like working a hard day's work is what it takes to make money. Very few of us are brought up with the idea that you can make literally thousands of dollars in a matter of minutes with very little expended effort other than picking up the phone and placing a timely trade. This is foreign to most people. And, more importantly, it doesn't fit the picture most people have of themselves. For instance, if your father worked 11 hours a day, 6 days a week to put food on your family's table, then it's only natural that your idea of making money would include hard work and long hours. You spent much of your childhood seeing it done that way. Our self-image has a stronger hold on us than you could ever imagine. For instance, if we believe that people don't deserve to make money as fast as is possible trading the markets, then undoubtedly what will happen if we make money very quickly in the market is our...

Getting Rich Is Automatic Jf You Have a Good Plan and Stick to It

My friend Tom is an excellent stockbroker. He often says, The sad thing is that nine out of ten investors do not make money. Tom goes on to explain that while these nine out of ten investors do not lose money, they just fail to make money. Rich dad said a similar thing to me Most people who consider themselves investors make money one day and then give it back a week later. So they do not lose money, they simply fail to make money. Yet they consider themselves investors. Years ago, rich dad explained to me that much of what people think is investing is really the Hollywood version of investing. The average person often has mental images of floor traders shouting buy sell orders at the start of the trading day, or images of tycoons making millions of dollars in a single trade, or images of stock prices plummeting and investors diving out of tall office buildings. To rich dad, that was not investing. I remember watching a program where Warren Buffet was being interviewed. During the...

The Seven Ways Millionaire Real Estate Investors Think

It takes just as much time and energy to think small as it does to think big. The only difference lies in the results you get. Most people don't truly realize this and as a result don't consciously choose the way they think. The millionaire mountain logo on the cover of this book is meant to symbolize the power of thinking big. It comes from a discussion of climbing Mount Everest I sometimes use to illustrate the path of high achievement going after big audacious goals. People who set out to test the slopes of Mount Everest don't do so on a whim. It's a big goal, and it requires big thinking. They study, plan, and think strategically. Months, even years, of preparation are involved because Consider this chapter, Think a Million, as your financial base camp on the path to climbing the millionaire mountain. It's a place where even the most competent and confident climbers must pause and listen to the wisdom of those who have reached the summit before them. It's...

Financial Statement Analysis

This appendix provides some basic financial statement analysis concepts used in applying real options. The focus is on calculating the free cash flows used under different scenarios, including making appropriate adjustments under levered and unlevered operating conditions. Although many versions of free cash flows exist, these calculations are examples of more generic free cash flows applicable under most circumstances. An adjustment for inflation and the calculation of terminal cash flows are also presented here. Finally, a market multiple approach that uses price-to-earnings ratios is also briefly discussed.

If The Subscription Is Free How Do They Make Money

To ensure that you arc getting a fair shake, it is best to make sure that the expert or system has no relationship with any broker. A dead giveaway is them asking you to trade with their preferred broker, which is just another way of saying that they make a pip or two out of every trade that you place. You want to steer clear of anyone making money from your trading, since at the end of the day they do not care if you win or lose money they just want you to trade.

Forecasting Financial Statements

With these input data, we can construct three financial statements The CB, the IS, and the BS. In the next table, we show the procedure to do this. We start with some IT and we end with the financial statements. Table 8.12 presents the nominal increase in prices and growth in units.

Of Financial Statements

What are the major financial statements provided by firms, and what specific information does each of them contain Why is financial statement analysis done if markets are efficient and forward-looking What major financial ratios are used by analysts in the following areas stock valuation, estimating and evaluating systematic risk, predicting the credit ratings on bonds, and predicting bankruptcy You have probably already flipped the pages of this chapter and recognized that it is a fairly long chapter with several financial statements and numerous financial ratios. A logical question is, What is the purpose of this extensive discussion of how to analyze financial statements To answer this very reasonable question, we need to recall the process of investing. Early on, the point was made that our ultimate goal is to construct a portfolio of investments that will provide rates of return that are consistent with the risk involved with the portfolio. In turn, to determine the expected...

Americas First Millionaire

It's a little-known fact that America's first millionaire was a real estate investor. A German immigrant and the son of a butcher, he was named John Jacob Astor. In the early 1800s Astor got rich trading in furs, tea, silk, and fine china, but that was not where his real fortune was made. Eventually he invested his trading profits in something that would prove to be even better real estate. His most profitable investments were in New York City, and before long the man known as Manhattan's Landlord was widely acknowledged as the wealthiest person of his time. He had not only become America's first millionaire, he was now its first multimillionaire. Shortly before his death Astor reportedly said, Could I begin life again, knowing what I now know, and had money to invest, I would buy every foot of land on the Island of Manhattan. Astor passed away in 1848, leaving over 20 million to his heirs.1 This immigrant butcher's son not only was America's first millionaire and multimillionaire, he...

Financial Statements Explained

Now that you have a good idea of how businesses generate cash and how profits are recorded on financial statements, let's look at each of the three main financial statements in detail. Unfortunately, not all businesses are as simple as a hot dog stand, so we need to introduce some additional complexity if we want to analyze real companies. But fear not as we walk through the balance sheet, income statement, and cash flow statement, we'll look at a few real-world companies to see what their financial statements can tell us about how their businesses are functioning. Wherever possible, I'll refer to excerpts from the financial statements of Dell and Hewlett-Packard (H-P), taken from the two firms' io-k filings with the SEC. (The Dell excerpts contain data through January 31, 2003, and the H-P excerpts contain data through October 31, 2002.) We'll start with the balance sheet, move on to the income statement, and finish with the statement of cash flows. At the start of each section,...

What Is Left Out of Financial Statements

Many articles, books, and online tutorials explain what is included on the financial statement, and in the annual report. But of equal importance and rarely discussed is what is not included. At times, the information that is left out can be more important than what is shown. It may be that finding the excluded information will be more difficult than interpreting what is there. Thus, many individuals working on their own will find this level of fundamental analysis to be time consuming as well as complicated. Two solutions should be considered First, perform investment research with the expert help of a financial planner. Pick one who bases this research on experience and an understanding of the fundamentals, and who holds the professional designation Certified Financial Planner (CFP). It will cost money to hire a planner, but the benefits of expert selection may be financial planner Certified Financial Planner (CFP)

Analysis of NonUS Financial Statements

As noted previously, your portfolio should encompass other economies and markets, numerous global industries, and many foreign firms in these global industries. You should recognize, however, that non-U.S. financial statements will differ widely from those in this chapter and be different from what you will see in a typical accounting course because accounting conventions differ substantially among countries. While it is beyond the scope of this book to discuss alternative accounting conventions in detail, we encourage the reader to examine the references at the end of the chapter on international accounting topics.

The Quality of Financial Statements

Analysts sometimes speak of the quality of a firm's earnings, or the quality of a firm's balance sheet. In general, quality financial statements are a good reflection of reality accounting tricks and one-time charges are not used to make the firm appear stronger than it really is. Some factors that lead to lower-quality financial statements were mentioned previously when we discussed ratio analysis. Other quality influences are discussed in the following sections.20 The Value of Financial Statement Analysis 353

What Is the Price of Becoming Rich

Rich dad would tell me that there are many ways a person can become rich, and each one has a price. 1. You can become rich by marrying someone for his or her money. 2. You can become rich by being a crook, a cheat, or an outlaw. He would say, It is so easy to become rich legally. Why would people want to break the law and risk going to jail unless they really enjoyed the thrill of it all To risk going to jail is much too high a price for me. I want to be rich for my freedom, so why risk going to jail I would lose my self-respect. I could not face my family and friends if I were doing something illegal. Besides, I am a bad liar. I have a poor memory, and I could not keep track of all my lies, so it is best to just tell the truth. In my opinion, honesty is the best policy. You can become rich through inheritance. Rich dad would say, Mike often feels like he did not earn his keep. He wonders if he could have become rich on his own. I have therefore given him very 4. You can become rich...

Million Dollars Is the Starting Point

Davidson also said it is best to acquire wealth with financial competence. Being a millionaire today does not mean that much. Today, 1 million is just the starting point to beginning to invest like the rich. So Davidson is in reality recommending choice 8 as the means to becoming rich. To rich dad, being financially smart included knowing when to be frugal and when not to be. 8. You can become rich by being financially smart. It was learning to be finanically smart where I began to harness the same investing power I had witnessed at the age of 12 standing on the beach looking at rich dad's new piece of ocean front land. Many people become rich by being very smart with knowledge from the B and I quadrants. Many of these individuals operate behind the scenes and manage, control, and manipulate the world's business and financial systems.

Millionaire Real Estate Investor

Probably the most common question on the tip of every new investor's tongue is Now that I'm ready to invest, how do I find great investment properties The Lead Generation Model of the Millionaire Real Estate Investor answers that question. Without leads prospective properties that look like great opportunities your investment plan can't be accomplished. To be successful, you need leads lots of them in fact, the more, the better. With more leads you get more opportunities, and with more opportunities you get to pick the very best among them. This is what millionaires do. They get the most leads and as a result get the best properties. You could say it's quantity of opportunities first and quality of picks second. This is why millionaires take lead generation seriously and take it big. They know that finding great investment properties is a numbers game and that the quality is in the quantity. Elmer Diaz Millionaire Real Estate Investor ty leads them to find the Houston, tx wrong...

Financial Statements Brief Review

The guts of an annual financial report are the three primary financial statements explained in previous chapters. To review briefly 3. Cash Flow Statement Profit generates cash flow, but the amount of cash flow from profit during the year is not equal to net income for the year. This third financial statement starts with a section summarizing cash flow from profit for the year, which is an extremely important number. The statement also reports other sources of cash for the year, and what the company did with its available cash during the year. The cash flow statement exposes the financial strategy of the business. In short, the three financial statements revolve around the three financial imperatives of every business to make profit, to remain in healthy financial condition, and to make good use of cash flow. The three financial statements usually fit on three pages of an annual financial report, one statement on each page. Although generally accepted accounting principles (GAAP) do...

Fundamental or Financial Statement Data

Fundamental data consists of everything that is disclosed in 10-Q quarterly and 10-K annual reports, including key business items, such as earnings, sales, inventories, and rents. These facts are certified by the company itself. Of course, not all companies follow the same accounting principles. In fact, every company does it differently. Analysis of financial statement is a well-developed and important area of research.

The Financial Skills of a Qualified Investor

For people who want to learn the basic financial skills, we developed CASHFLOW 101. We recommend playing it at least six to twelve times. By playing 101 repeatedly, you begin to understand the basics of fundamental investment analysis. After playing 101 and gaining an understanding of the financial skills it teaches, you may want to move on to playing CASHFLOW202. The advanced game uses the very same game board as 101, but it goes to another level, using a different set of cards and scoring sheets. In 202, you begin to learn the complex skills and vocabulary of technical trading. You learn to use trading techniques such as short selling, which is selling shares you do not own, in anticipation of the price coming down. You also learn to use call options, put options, and straddles. All of these are very sophisticated trading techniques, which all qualified investors need to know. The best thing about these games is that you learn by playing and using play money. That same education in...

Brokerage Firms Money Management Firms And Financial Planning Firms

All of these supposedly venerable institutions work hard on their marketing plans. They may trot out their biggest winners over the past year or two until you wonder why you were not invested in those things years ago. Or they may sell you a simple plan (oh, but that there could be a simple plan) to effortlessly get rich over time. They give you a glowy picture of what your retirement years could look like, in percentages and dollar bills, and lay before you a yellow brick road built on charts and graphs. Surely you, too, will find financial peace and freedom (just like they have ) if you give them all your money and follow these easy steps. Step 1 Don't blame them if you lose a lot of money.

How to Get Rich Quick

Rich dad would regularly review the various levels of investors with me. He wanted me to understand the various ways investors made their fortunes. My rich dad had become wealthy by first investing as an inside investor. He had started small and learned the tax advantages available to him. He quickly gained confidence and became a truly sophisticated investor at an early age. He had built an incredible financial empire. My real dad, on the other hand, had worked hard all his life as a government employee and had little to show for it. In the introduction this book I related the story of walking along the beach with my rich dad looking at the large piece of ocean front property he had just purchased. During that walk on the beach, I realized that my rich dad had just purchased an investment that only a rich person could acquire. The problem was my rich dad was not really a rich man, yet. That is why I asked him how he could afford such an expensive investment when I knew my real dad, a...

The Short Swing how we make money when we think the price of the stock is going down

A short swing is used to make money when a stock's price is predicted to go down. We sell short the stock. For those unfamiliar with shorting stocks, we sell the stock without having previously owned it. Additional detail about shorting stocks can be found the Appendix. For now, it is only necessary to know that our goal is to sell the stock and buy it back at a lower price.

An Illustration Of Financial Statement Analysis

Table 13.12 shows some key financial ratios we can compute from GI's financial statements. The president is certainly right about the growth in sales, assets, and operating income. Inspection of GI's key financial ratios, however, contradicts her first sentence 2003 was not another successful year for GI it appears to have been another miserable one. 13 Financial Statement Analysis 469

HovO stack funds make money

When you invest in stock mutual funds, you can make money in three count 'em three ways They are utility stocks thinking that you'll make more money because of the heftier dividends. Utilities and other companies paying high dividends tend not to appreciate as much over time because they aren't reinvesting as much in their businesses and growing.

Shorting making money when shares fall

One of the major uses of spread betting is shorting, where you are doing the opposite of buying a share. You make money if the stock goes down. I would urge new investors to tread carefully before getting into shorting, but it's something that must be considered because it means you can make money during a period when the market is going down. And while I do urge caution, it is something you should learn about quite quickly. Markets often turn down for quite a while and shorting could be the only way to make money. I tend to only take out short positions in quite large companies. The reason is mainly the spread. The spread firms usually quote much bigger spreads in smaller companies, and for shorting purposes I find the spread is simply too much.

Business Financial Statement Form Setup

A financial statement about your real estate business is almost exactly like a personal financial statement about yourself. If you're just starting out in business, chances are your personal statement is all you need. However, if you have several properties already, or perhaps a real estate partnership interest, I would suggest you prepare a business statement to better demonstrate your financial capacity. In my real estate business, the management division One Stop Home Rental Company owns trucks, special tools, and furniture, which are not included on my personal financial statement. As you expand your real estate activity, you may find it's better to have several separate business entities. Each should have its own financial statement.

Financial Planners And Investment Advisers

Financial planners can act in different capacities. Some manage and invest their clients' funds directly in specific stocks and bonds others invest such funds in well-researched mutual funds. Still others refer the client to an investment adviser. Some are paid on the basis of commissions from insurance or other investments, while others charge on a fee basis only. Investment advisers, on the other hand, generally do little or no financial planning and specialize in investing client funds in stocks, bonds, and other securities. Generally their only compensation is a commission of between 1 and 2 percent of the assets they manage. Thus, as the portfolio grows, so does the adviser's fee. Some advisory firms provide a great deal of personal attention and handholding, while others do not. Some take great care to individualize a portfolio, taking into account their clients' personal tax situations before making buy-and-sell decisions, and others buy and sell solely on the basis of...

Your Goal Is to Make Money

Remember, as an investor, you are doing deals primarily to make money. Don't become emotionally attached to an investment property as you might a house that you intend to occupy as your long-term home. With an investment, the numbers either work to give you a great buy, or they don't. When they don't, keep on negotiating or look elsewhere.

More Money Will Follow The Money

This conversion from one currency to another is significant if it is done on a large scale as an increased demand for that high-interest-rate currency will cause that currency to appreciate against the low-yielding currency. Usually, birds of the same feather will flock together, with money attracting more money to the same place as other investors follow suit. Forex traders, sensing this snowballing effect, will then execute carry trades in the currency market, with the hope that there will be a continued demand for the high-yielding currency as they can then profit from the interest spread as well as from capital appreciation.

The Purpose of Financial Statements

The purpose of externally reported financial statements is to provide useful financial information about a business to its investors and lenders and render an accounting to its sources of capital. Others may be interested in the financial affairs of a business for example, its employees and other creditors. The primary audience of financial statements is the owner-investors in a business and its lenders. Financial reporting standards and generally accepted accounting principles (GAAP) have been developed with this primary audience in mind. For instance, a business cannot selectively release information to some stockholders or lenders but not to others, nor can a business tip off some of them before informing the others. The laws and accepted practices of financial reporting are designed to ensure that all stockholders and lenders have equal access to a company's financial information and financial statements. A company's financial statements may not be the first source of information...

Garys Advice Follow My Simple Formula to Become Wealthy

I often tell people that a simple way to get wealthy in real estate is to buy one solid house a year for ten years. At the end of ten years, you can have millions of dollars in real estate. Then, depending on how old you are, spend the next ten to 20 years paying off these properties. If you're older or more ambitious, buy two or three houses a year for five years and then focus on paying them off. When retirement comes, sell off the properties that don't work and keep the good rentals for residual income. If you need cash to pay your kids' college expenses or take a vacation around the world with your spouse, you can borrow against the increased equity. I've helped several people over the past 30 years become millionaires with this simple formula and it will work for you.

Overview of Financial Statements

A company's financial statements are reproduced in Exhibit N on page 150. This is the same company example used in earlier chapters. The footnotes for these statements are not presented. (Chapter 16 discusses footnotes to financial statements.) Also, the chapter does not discuss the important topic of trend analysis, which involves comparing a company's latest financial statements with its previous years' statements to identify important year-to-year changes. For example, investors and lenders are very interested in the sales growth or decline of a business, and the resulting impact on profit performance, cash flow, and financial condition. The chapter has a more modest objective to explain basic ratios used in financial statement analysis. Only a handful of ratios are discussed in the chapter, but they are extremely important and widely used. Upon opening a company's financial report probably one of the first things most investors do is to give the financial statements a once-over...

Financial Statements and Schedules

.l inancial statements are crucial to those who use them by providing information necessary to make decisions regarding an organization. Users of financial statements are classified as either internal or external. Internal users of financial statements include accounting and finance groups, managers, senior executives, and board members. This group uses statements to measure the progress of the company, to evaluate its strength, and to identify areas where improvement is needed. External users of financial statements typically fall into one of three categories investors, the government, and the general public. Investors include both creditors and debtors, who rely on information from financial statements to make funding decisions regarding equity and debt. Government agencies include local, state, and federal tax authorities, as well as various regulatory agencies. Finally, for corporations that are publicly traded, information is provided to the general public. Financial statements...

Are You the Next Billionaire

The 1999 edition of Forbes ', richest 400 people states on the cover, The Billionaire Next Door. That issue has an article titled A Century of Wealth and a subtitle that reads, Where does great wealth come from Years ago, oil and steel were the foundations of many American fortunes. Today, it's more a matter of how many eyeballs you command. According to the article If you want to talk about super-rich, you have to set your sights higher to billionaires, who are being minted faster than ever, using ever more ephemeral products to make their money. It took Rockefeller 25 years of finding, drilling and distributing oil to make his first billion. Last year, Garry Winnick joined the billionaires' club just 18 months after putting his money into Global Crossing, a company that intends to, but has yet to, develop a global fiber optic telecommunications network. So how long does it take to become super-rich these days The answer is not long. That reality becomes even more apparent for...

Are financial statements reliable and trustworthy

Yes, the vast majority of audited financial statements are presented fairly according to established standards, which are called generally accepted accounting principles. If not, the CPA auditor calls deviations or shortcomings to your attention. So, be sure to read the auditor's report. You should realize, however, that financial accounting standards are not static. Over time these profit measurement methods and disclosure practices change and evolve.

Is it worth your time as an individual investor to read carefully through the financial statements and also to compute

The women's investment club was very surprised by this answer, and I don't blame them. The conventional wisdom is that by diligent reading of financial statements you will discover under- or overvalued securities. But, the evidence doesn't support this premise. Market prices reflect all publicly available information about a business, including the information in its latest quarterly and annual financial reports. If you enjoy reading through financial statements, as I do, fine. It's a valuable learning experience. But don't expect to find out something that the market doesn't already know. It's very unlikely that you will find a nugget of information that has been overlooked by everyone else. Forget it it's not worth your time as an investor. The same time would be better spent keeping up with current developments reported in the financial press.

So Are You the Next Billionaire

Several years ago, when I was deeply in debt, I thought becoming a millionaire was impossible. Therefore, in retrospect, I do not think actually achieving the goal is as important as writing down the goal and then going for it. Once I committed to the goal, my mind seemed to find the ways my goal could be possible. If I had said the goal of becoming a millionaire was impossible, I believe it would have become a self-fulfilling prophecy. After I set the goal to become a billionaire, I was plagued with self-doubt. However, my mind began to show me ways it was possible. As I focus on the goal, I continue to see how becoming a billionaire could be possible for me. I often repeat this saying to myself If you think you can, you can if you think you can't, you can't. Either way you're right. I don't know who the author is, but I thank that person for thinking it.

Why should you read financial statements then

You would obviously inspect a house before getting serious about buying it, to see if it has two stories, three or more bedrooms, a basement, a good general appearance, and so on. Likewise, you should know the financial architecture of a business before putting your capital in its securities. Financial statements serve this getting-acquainted purpose very well. One basic stock investment strategy is to search through financial reports, or financial statement data stored in computer databases, to find corporations that meet certain criteria for example, whose market values are less than their book values, whose cash and cash equivalent per share are more than a certain percent of their current market value, and so on. Whether these stocks end up beating the market is another matter. In any case, financial statements can be culled through to find whatever types of corporations you are looking for.

Why It Is Possible to Be a Billionaire

Once I set my goal to become a billionaire, I began to find reasons you can become a billionaire today more easily than ever before. They are 5. As more people become more prosperous, they will want to invest more and more money into new startup businesses, not only to help the new business but also to share in the profits. Today, it is hard for most people to grasp the reality that there are literally tens of billions of dollars looking for new innovative companies to invest in every year. 7. The key word is ephemeral. In my opinion, that word is one of the most important words for anyone who desires to become rich or super-rich. Webster's defines the word as meaning lasting only a day, or lasting only a short time.

So What Is My Plan to Become a Billionaire

The answer is found in the word ephemeral. To become a billionaire, I need to provide a lot for many, for very little. I need to find an area of business that today is fat, bloated, and inefficient, an area where people are dissatisfied with the current system and whose products need improving. The industry I have the most opportunity in is the biggest industry of all education. If you take a moment and Why is everyone suddenly so excited Because of the parallels they see between education and healthcare. Twenty-five years ago, healthcare was mostly stuck in the public and voluntary sectors. Today it is a multi-billion-dollar, largely private industry. A lot of rich people, not just Mr. Milken and Henry Kravis, but also Warren Buffett, Paul Allen, John Doerr, and Sam Zell, are all betting that education is moving in the same direction. Companies from a range of conventional industries are investing in the business, including Sun, Micros oft, Oracle, Apple, Sony, Harcourt General, and...

Financial Planning Sources

To find a financial planner to help you with your general financial needs, contact the following organizations Certified Financial Planner Board of Standards Get a free copy of the CFP Board's pamphlet 10 Questions to Ask When Choosing a Financial Planner. Be sure to ask for a financial plannerthat specializes in investing. Financial Planning Association (FPA)

Do financial statements report the value of the business as a whole

The balance sheet of a business does not report what the market value of a company would be on the auction block. Financial statements are prepared on the going concern, historical cost accounting basis not on a current market value basis. Until there is a serious buyer or an actual takeover attempt it's anyone's guess how much a business would fetch. A buyer may be willing to pay much more than or only a fraction of the reported (book value) of the owners' equity reported in its most recent balance sheet.

Should financial statements be taken at face value when buying a business

The potential buyer of a business as a whole (or the controlling interest in a business) should have in hand the latest financial statements of the company. The financial statements are the essential point of reference but are just a good point of departure for many questions. For example, are book values good indicators of the current market and replacement values of the company's assets

Rich People Dont Make Big Bets

Rich people, who are generally smart, have learned that you don't bet the farm on one spin of the wheel, investment deal, or trade. Wannabe speculators are consumed with the notion that they will amass tons of money very quickly by making a killing. They become the hapless victims, as in the process they have become plungers. Yes, you can plunge once or twice in your life, but if you consistently plunge, you will lose on one of these wagers, and since you are betting it all, you will lose it all. That is why rich people don't make big bets. Rich people make more money by finding a good investment or two, and investing an optimal amount in those investments. There is no need to take the risk of being wiped out in exchange for the thrill of plunging it simply is not worth it.

Mary Mcdonald Millionaire Real Estate Investor

Mary McDonald Millionaire Real Estate Investor Coopersburg, PA In the end the primary purpose of the four cash-building strategies is to generate immediate cash, income which can be used as earned income or put back into play along the Path of Money. Many of the investors we talked with at one time or another used all these methods to launch their real estate investing careers. When they did them right, which they will warn you is not as easy as it often is made out to be, they were able to build up some cash savings, which they could use as down payments on income properties. They were taking cash and reinvesting it for cash flow and equity long-term financial wealth building.

Why the Rich Get Richer

When I was younger, my rich dad said to me, The rich get richer partly because they invest differently than others they invest in investments that are not offered to the poor and the middle class. Most importantly, however, they have a different educational background. If you have the education, you will always have plenty of money. Davidson points out that the dollar has lost 90 of its value in the last century. Being a cheap millionaire is therefore not enough. To qualify to invest in the investments of the rich, the price is at least 1 million of net worth. Even then, you may not be competent enough to safely invest in what the rich invest in. The price of being financially free requires time and dedication to gain the education, experience, and excessive cash to invest at those levels. You know you are financially smarter or increasing in sophistication when you can tell the differences between 9. You can become rich by being generous. This was the way rich dad became rich. He...

The Trouble with Conventional Financial Statement Reporting

Unfortunately, the way financial statements are presented to business managers and other interested readers does not pave the way for understanding how making profit drives the financial condition and cash flow of the business. You can miss the vital interplay between the income statement and the balance sheet because each statement is presented like a tub standing on its own feet interconnections between these two financial statements are not made explicit. Exhibits B and C in Chapter 2 present the balance sheet and income statement for a business, as you would see these two primary financial statements. Each of the two statements stands alone, by itself, which is the standard way of presenting financial statements in a financial report. There is no clear trail of the crossover effects between these two basic financial statements. The statements are presented on the assumption that readers understand the couplings and linkages between the two statements and that readers make...

Lies Damned Lies and Financial Statements

Financial obfuscation is not new, but has certainly reached new heights of absurdity in the public markets during the past 15 years. For one's own protection, an entrepreneurial investor must know how to read a financial statement. To that end, we offer our usual advice simplify By definition, public companies must parade their results before the public, and they do so in the form of a financial statement. Like the fabled emperor, companies want to look their best when they appear in public, so they put a lot of effort into dressing up their financial statements. Some wish to show off their fine physique, earned through long hours at the gym. Others wish to hide some subtle imperfection. Still others want to disguise their true selves. You may recall that the emperor was tricked into wearing nothing and his subjects accepted this because they were told he was wearing a suit of fabric so fine that only the finest people could see it. In this context, knowing how to read a financial...

No gray areas None what and you could become rich

Many investors believed the financial world to be rational, convinced that stock prices had a built-in logic. Discern that logic, and you could become rich. Soros would have none of that. He thought the financial world was unstable, chaotic. Soros thought Discern the chaos, and you could become rich. Trying to fathom the financial markets, as if their movements were part of some gigantic mathematical formula, would never work. For Soros was convinced that mathematics did not govern the financial markets. As the world's greatest investor, he had amassed more money than most people will ever see in one lifetime, or a hundred lifetimes. Yet, The decision was, in one sense, easy. He had to make a living anyway. Why not try to show all those economists that he understood the workings of the world better than they did by making as much money as possible Soros believed that money would give him a platform from which he could expound his views. Making money, in short, would help him to be a...

Its impossible not to become wealthy over time in this business

Stanley Armstrong Millionaire Real Estate Investor Washington, DC revealed, The oldest fortunes in America have come from the land. Unlike Europe, where most of the valuable acreage has been held and passed down by nobility for centuries, American real estate has been open to virtually anybody with the daring and the ingenuity to possess it. 3 With that powerful insight in mind, let's take a moment to run through some of the many advantages of investing in real estate that lead Millionaire Real Estate Investors to refer to real estate as a most able investment.

Useful Layout to See the Interlocking Nature of Financial Statements

Exhibit D shows the general flow of connections between the three financial statements. Sales revenue and expenses cause changes in balance sheet accounts from accounts receivable through income tax payable. These same accounts affect cash flow. The balance sheet is positioned in the middle and is shown in a vertical format, called the ''report form assets on top, and liabilities and stockholders' equity below. The income statement is placed on the left side and the cash flow statement on the right. The three primary financial statements are lashed together in Exhibit D. The connections among the three are presented like a road map showing the highways between the statements, or how to get from one statement to another. Let me be clear that financial statements are not reported to business managers or to creditors and investors as shown in Exhibit D. Accountants assume that financial statement readers mentally fill in the connections shown in Exhibit D. Accountants assume too much. It...

Prospective Analysis Guidelines for Forecasting Financial Statements

Having performed an accounting and financial analysis, an analyst has to forecast financial statements into the future. This is a precursor to valuation. Many methods of forecasting like percent sales method are available. In this chapter, we provide a comprehensive overview of prospective analysis. Although parts of the chapter are written from the perspective of a company's manager, they are still valid for an analyst. After all, the analyst's perspective mirrors that of the manager. This chapter has the following objectives In this chapter, we discuss some ideas that might be useful in forecasting financial statements based on historical data.1 The approaches and suggestions presented in this chapter assume that the analyst has access to some company information that is not usually found in publicly available financial statements. In forecasting financial statements, we start with the historical financial statements and from them we identify the patterns and relationships of...

Millionaire Real Estate Investors

Because each person's story of how he or she became a Millionaire Real Estate Investor was compelling and inspirational and because we had a limited amount of space, it was extremely difficult to select only 21 stories to share. We fretted, we scratched our heads, and we wrangled over who to choose before finally deciding. The amazing individuals featured in the pages that follow were chosen because of the breadth, depth, and diversity of their investment journeys. Separately, the thread of their individual stories may not have been the most colorful or the most fantastic, but as a whole their successes weave a rich tapestry that fully illustrates what it takes to become a Millionaire Real Estate Investor. These people see the endless possibilities of wealth building through real estate. They were our inspiration, and we hope they will inspire you. It had taken Beck two years to build up the courage to make that first buy in 1979. But over the next five years he bought 80 more units,...

The Financial Model of the Millionaire Real Estate Investor

Within those two are a vast array of variations that can give the appearance of massive complexity, and by using those various options you can make real estate investing as complex as you want. Eventually most millionaires do, but not in the beginning. They always start with the basics and build from there. When you truly understand the two basic drivers of financial wealth, you begin to see the fundamental opportunities they present and know how to take advantage of them. If you are like me or any of our Millionaire Real Estate Investors, this is when you really get excited. That's the power of this financial model it both guides you and motivates you.

Volume of data in financial statement

A simplistic (but surprisingly effective) measure of complexity is the volume of data in a financial statement. For instance, the 10K filings made by firms with the Securities and Exchange Commission (SEC) range in size from less than 200 pages to in Table 16.1 Complexity in Financial Statements U.S. companies Table 16.1 Complexity in Financial Statements U.S. companies

Henry has earned over 500 million dollars in his career

Ed Seykota, trading as a trend follower, turned 5,000 into 15,000,000 over 12 years in his model account. That's a 250,000 return. Ed is one of the great teachers alive today, specializing in money management and psychology. Michael Marcus, a student of Ed Seykota, turned 30,000 into 80 million trading as a trend follower. Jerry Parker was a small town person from Lynchburg, Virginia that went onto become the largest of the original Turtle traders making well over 100 million dollars profit for himself by the age of 40. Bill Dunn has traded as a trend follower since the mid 1970's. He has averaged over 25 annual compounded return for 25 years. His net worth exceeds 200 million dollars. All from trend following trading. One of his trend following funds is up 7112 since 1974.

Why Financial Statements Are So Important

Millions of persons depend on financial statements for vital information about the profit (or loss) performance, financial condition, and cash flows of businesses. This sweeping congregation of financial report users includes bankers deciding whether to make loans to businesses investors deciding whether to buy, hold, or sell stocks and bonds of public corporations buyers and sellers of businesses deciding the value of companies owners of closely held businesses evaluating how their ventures are doing suppliers deciding whether to sell to businesses on credit and pension fund managers carrying out their fiduciary responsibility, which requires due diligence in managing other people's money. For that matter, what about business managers Managers are the first and most immediate users of financial statements. Managers depend on their income statements to know how much profit was made (or how much loss was incurred). Managers also need balance sheet and cash flow information to keep on...

Myth 3 You Can Flip Your Way to Success or Get Rich Quick with No Money Down

Many people think that flipping property, in other words buying it and quickly turning around and selling it for more than you paid for it, is the way to grow wealth. The people who believe strongly in this have been lucky enough to make money this way. But in my opinion, this is like day trading in the stock market. It isn't easy, and it is very risky. No money down is another way of saying that the property is 100 percent financed. That means a much larger part, if not all, of your cash flow is going toward the monthly payment. In no-money-down deals, you'll be paying higher interest rates because there is greater risk to the lender, have higher loan costs, and have virtually no money to improve the property or even repair it should something break. With this model, you are banking on the property appreciating to make money rather than improving the operations of the property and making money through cash flow. Let's hope the market is high-flying and that you time it perfectly...

Marketing Yourself

Productive networking requires some proactive efforts on your part, especially when you're first starting out. People are often ready, willing, and able to assist an honest and competent investor if they know that such a person exists. By marketing yourself, what you have to offer, and what you need to do your job, you soon discover that your name, face, and reputation are recognized throughout the neighborhood.

Am a billionaire

I use this system after researching any company that looks of interest. I pretend that I am a multi-billionaire investor and could buy any company or as many companies as I want to. But of course I want to buy them on the cheap. I want to buy companies that are making profits, but if I pay cash for the companies I know these profits would probably grow. Over a few years I'd get back what I paid for the company and start to make a lot of money on top. The first thing to look at is the profit the company makes and the second is the market capitalisation. In my billionaire role, my rule of thumb for how much the company might cost me to buy is the market capitalisation. So if a company's market cap is 50 million, that's how much the market currently thinks the company is worth. As a billionaire, I don't really care about complicated financial ratios and all that twaddle. What I want to know is how much do you want for your company and what are the profits

Financial statements

Look over the various financial statements and find the relevant numbers. Every annual report should have (at the very least) a balance sheet and an income statement. Catching the important numbers on a financial statement isn't that difficult to do. However, it certainly helps when you pick up some basic accounting knowledge. Chapter 10 can give you more details on evaluating financial statements. Carefully read the footnotes to the financial statements. Sometimes big changes are communicated in small print.

Financial Planners

There are many good financial planners, but the problem is they all want to get paid. And the making money thing can often go contrary to their best intentions. Imagine if all the pharmaceutical companies paid commissions to doctors through vacations, gifts, and the like to incentivize them to sell their drugs to one and all. No need to imagine, really. It happens. Similarly, financial planners may get paid by insurance companies to sell life insurance and a variety of annuity products, which often are terrible plans with huge surrender fees. They are also often paid percentages of up-front fees by mutual funds that you end up paying, called loads, whereas similar mutual funds with no loads have the same or better performance without up-front load fees. Some financial planners will work up a book-thick 10-year financial and retirement plan for you for a mere 5,000. But three to five years from now your life won't look anything like what you are currently projecting it to be, because,...

Get Rich Slowly

An amateur trying to get rich quick is like a monkey out on a thin branch. He reaches for a ripe fruit but crashes when the branch breaks under his weight. An amateur who opens a 20,000 trading account and expects to run it into a million in two years is like a teenager who runs away to Hollywood to become a pop singer. He may succeed, but the exceptions only confirm the rule. Amateurs try to get rich quick but destroy themselves by taking wild risks. They may succeed for a while but hang themselves, given enough rope. If you set modest goals for yourself and achieve them, you can go very far. If you can make 30 percent annually, people will beg you to manage their money. If you manage 10 million not an outlandish amount in today's markets your management fee alone can run 6 percent of that, or 600,000 a year. If you make a 30 percent profit, you will keep 15 percent of it as an incentive fee another 450,000. You will earn over a million dollars a year trading, without taking big...

Preface to the Fifth Edition

When I started this book we had no grandchildren today we have eight. Then (1979-1980) the Dow Jones Industrial Average hovered around 850. Today the Dow is over 8500, a multiple of 10 times in 20 years. During this period, millions of persons entered the stock market. Today a large part of retirement savings is invested in stocks. Stock values depend on information reported in financial statements, so knowing how to read a financial report is more important than ever. This edition catches up with recent developments in financial statement accounting and financial reporting. All exhibits have been refreshed to make them easier to follow and more relevant. The exhibits in this edition are typeset from printouts from Microsoft Excel work sheets I have prepared. To request a copy please contact me at my e-mail address tracyj colorado.edu. very successful. Cash flow is underscored throughout the book this is the hallmark of the book, and what distinguishes it from other books on analyzing...

Cash Flows Do Not Reveal Financial Condition

In fact, a slightly different version of Exhibit A is one of the three primary financial statements reported by every business. But in no sense does the cash flows report take the place of the profit performance report and the financial condition report. The next chapter introduces these two financial statements, or sheets, as some people call them. A Final Note before Moving on Over the past century an entire profession has developed based on the preparation and reporting of business financial statements the accounting profession. In measuring their profit and in reporting their financial affairs, all businesses have to follow established rules and standards, which are called generally accepted accounting principles or GAAP for short. I'll say a lot more about GAAP and the accounting profession in later chapters.

Reporting Financial Condition and Profit Performance

The term financial statements, in the plural, generally refers to a complete set including a balance sheet, an income statement, and a cash flows statement. Informally, financial statements are called just financials. Financial statements are supplemented with footnotes and supporting schedules. The broader term financial report usually refers to all this, plus any additional narrative and graphics that accompany the financial statements and their supplementary footnotes and schedules. The format and content of the two primary financial statements as shown in Exhibits B and C apply to manufacturers, wholesalers, and retailers businesses that make or buy products that are sold to their customers. Although the financial statements of service businesses that don't sell products are somewhat different, Exhibits B and C illustrate the general framework of balance sheets and income statements for all businesses.

Disclosures in the Footnotes

The problems of the accounting industry are complex and far-reaching. For you, it means that the long-trusted audited financial statement cannot be accepted at face value as it has been in the past. Everyone has to adopt the philosophy that even independently audited financial statements have to be verified and their information subjected to your own ratios and tests. This task is not difficult. You can find corporate disclosures in the annual and quarterly statement footnotes for any listed company. Most of these are available online.

Exploring One Link at a Time

Please refer to Chapter 4 Exhibit on page 20. This exhibit is extracted from the master Exhibit D presented in Chapter 3 (page 18). Exhibit D presents the big picture it ties together all three of the company's financial statements. This chapter is the first of several that focus on just one connection at a time. Only one line of connection is highlighted in Chapter 4 Exhibit the one between sales revenue in the income statement and accounts receivable in the balance sheet.

Why Audited Statements Do Not Tell the Whole Story

While you cannot rely exclusively on the audited financial statement, this does not mean that statements are useless. In fact, they are valuable in what they do reveal. The starting point for trend analysis should be found on financial statements, but along with that you also need to be able to spot emerging problems or questionable reported numbers. For example, if a company is reporting declining sales, increasing expenses, and ever-higher net losses, everyone will agree that the trend is negative. But what if, at the same time, the company's working capital remains strong and consistent from one year to the next The numbers simply don't add up and something is wrong when this occurs.

Core Earnings Adjustments

One final observation concerning audited financial statements The reported outcomes are based on the GAAP system, which means that the conclusions are far from accurate. You need to take steps to adjust reported results to identify likely future trends. The results you see on an audited statement include everything, even profits from nonrecurring events. So if a company sells a major operating unit or has capital gains, those profits are included in the bottom line even though they won't occur again next year. The GAAP system enables this to occur, so the reported earnings are distorted. It is the equivalent of a consumer going to the bank and requesting a loan, and including in annual income a 200,000 profit from selling a home a few months before. The banker would adjust the numbers and tell that person that the home sale cannot be included in annual income. That is precisely what corporations do in their financial statements and it is acceptable under the GAAP system.

Finding and Interpreting Key Facts

Once you have the information in hand, the next step is to decide exactly what information you will want to review. Future chapters provide you with detailed examples for all of the tests and ratios that you can perform on financial statements. The following is a review of the primary points of interest. These may be used to quick-check a company and, perhaps, to eliminate a company from your list of possible investments. For example, you may set some basic rules for yourself. You may decide to not invest in companies that have never shown a profit those whose P E ratio is too high companies that do not pay dividends or companies whose bonds are rated below investment grade. These are only examples of some of the elimination points you could employ. Here is a quick-checklist you can use to review the numbers as reported on the financial statements, without needing a detailed review

Valuable Resource

Whether you work on your own or with professionals and fellow investors, you need to know what information is not shown on the financial statements. Some of the areas to remember are liabilities under contract, often long-term, to pay rent for equipment, rights, or real estate. These liabilities are probably not recorded on the financial statement of a corporation and can only be found in the footnotes. The unreliability of the asset account is disturbing by itself. This also affects the book value of equity and as a result, the book value of stock. So, in essence, you are asked to decide whether today's price per share of stock is reasonable, even though the financial information you have available is outdated. The financial statement's footnotes may include an estimate of fair market value for real estate and other assets. If not, you may need to call the company and ask for more information. the amount of money due to retired employees and accumulating in the accounts of current...

Profit and Cash Flow from Profit Not Identical Twins

This chapter is the first of two that explain the cash flow statement, which is the third primary financial statement reported by businesses in addition to the income statement and balance sheet (also called the statement of financial condition). Chapter 13 Exhibit on page 66 presents the official format for the cash flow statement of the business we have discussed since Chapter 1. Please take a moment to read down this statement. I'll make you a wager here. I bet you understand the second and third sections of the statement much better than the first section.

The Problem of Time and Fundamentals

Given the complexity of analyzing financial statements if only because so much is left off of them it is important to identify a short list of trends you do want to track. Making decisions to buy, hold, or sell stock has to be made on some initial premise that (1) the indicated financial strength and long-term growth potential are realistic (2) those trends will continue and, as long as they do, you will remain invested and (3) the financial reports you receive are, for the most part, complete and accurate.

Are Audits Required or Just a Good Idea

Corporations whose debt and stock securities are traded on a stock exchange are required by federal securities law to have their annual financial reports audited by an independent CPA firm. At the time of this writing the five large international CPA firms audit more than 12,000 companies in the United States. Beyond these large public companies, relatively few businesses are legally required to have their financial statements audited by independent CPAs. Audits by CPAs provide insurance against misleading financial statements. Auditors are expert accounting system detectives, and they thoroughly understand accounting principles and financial reporting standards. Being independent of a business, the CPA auditor will not tolerate fraud in the financial report. An audit takes a lot of time because the CPA has to examine a great deal of evidence and make many tests of the accounting records of the business before the CPA is able to express an opinion on the company's financial...

Auditors and Management Fraud

CPA auditors are hired to make sure that a company's financial statements are presented fairly and according to generally accepted accounting principles (GAAP). Despite getting a clean opinion from its CPA auditors to this effect, a company's financial statements may later be discovered to have been misleading. You may ask How could this happen How can a company's financial statements be given a clean bill of health from its auditors and then later be found out to have been incorrect This doesn't happen very often, but when it does the market value of a company's stock shares may suffer and in extreme cases the company may go into bankruptcy proceedings. Creditors and stockholders usually sue everyone involved the business, its top management, and the company's CPA auditors. Of course auditors don't like getting sued. Recent years have been very rough on large national CPA firms. They have paid millions of dollars to settle many lawsuits, and they have seen their good names dragged...

Accounting and Review Services by CPAs

A small business may not be able to afford an audit. The cost of an audit could be more than the total annual interest expense on the debt of a smaller business, for instance. Bankers and other sources of loans to business understand this, so they generally do not insist on audits. However, they may want a CPA to at least look over the financial reports of companies they loan money to or, they may make clear to their small-business customers that they would be more comfortable if the businesses used a CPA to advise them on their financial statements. A CPA can perform certain limited procedures which are called a review. A review is far less than a full-scale audit. But a review provides enough evidence about the company's financial statements so that the CPA can go on record that he or she is not aware of any modifications (changes) that are needed to make the financial statements conform with generally accepted accounting principles. The CPA warns the financial report readers that a...

Off Balance Sheet Liabilities

Among the many tricks used by executives in those corporations caught deceiving stockholders in the past, was one in which off-balance sheet liabilities were carried, at times in the billions of dollars. As a consequence, the value of the company and its stock could be vastly inflated. When the balance sheet leaves out important liabilities, it also affects working capital ratios as well as any study of capitalization.

Two Types of Footnotes

For many expenses (and even for sales revenue) most businesses can choose between two or three generally accepted accounting methods. The company's selections of accounting methods have to be made clear in footnotes. A footnote is needed for each significant accounting choice by the business. Footnotes assume some familiarity with accounting terminology, as you can see in the footnote from Caterpillar's financial statements quoted just below. This footnote reveals that Caterpillar's inventories in its balance sheets at these year-ends would have been 2 billion higher if the company had selected an alternative accounting method. And, its cost of goods sold expense for each year would have been different (but only by a few million dollars). Companies disclose their choice of depreciation methods in footnotes. (Chapter 21 discusses different depreciation methods). Other common footnotes explain the consolidation of the company's financial statements. Many large businesses consist of a...

Relationship between Revenues and Net Earnings

Similar examples can be found in virtually all industries. Prudential used to be known primarily for its whole life insurance business, as well as other insurance products. Today, Prudential is one of the major financial advisory concerns, with services ranging from investment banking to research, financial planning, and other related services in addition to insurance. Today, many large banks also are involved in financial services and investments as related service areas.

Development of the PE

The price is the current price of the stock and since price may change frequently, P E is an everchanging ratio as well. Earnings is more elusive because the number is published only periodically, so when you use the P E you are comparing today's stock price to earnings that may be far out of date, perhaps by as much as three months. With this in mind, giving value to the P E should be done cautiously it may be more revealing to study the P E trend. Compare price as of the closing date of a quarterly financial statement to earnings as of the same date, and use the trend as a means for judging the stock's value.

Using the Best of Both Sides

As a fundamental investor, should you simply ignore price trends, volatility, and current news or rumors Everyone in the market realizes how impractical that would be. It makes no sense to act as a purist and even those who swear by the financial statement react to price news. Many of the television financial shows devote two-thirds of program time to reminding viewers that the fundamentals are what count and the remaining time discussing price winners and losers and making predictions about market index movements So these so-called fundamental adherents wind up their programming on purely technical matters.

Importance of Cash Flows Cash Flows Summary for a Business

Business managers, lenders, and investors, quite rightly, focus on cashflows. Cash inflows and outflows are the heartbeat of every business. So, we'll start with cash flows. For our example we'll use a midsize company that has been operating many years. This established business makes a profit regularly and, equally important, it keeps in good financial condition. It has a good credit rating banks are willing to lend money to the company on very competitive terms. If the business needed more money for expansion, new investors would be willing to supply fresh capital to the business. None of this comes easy It takes good management to make profit, to raise capital, and to stay out of financial trouble.

Management Accounting Centerpiece The Profit Model

Model For Final Accounts

Suppose you're the new president of the company that has been used as the main example for studying external financial statements throughout the previous chapters. You ask me, the chief accountant and controller of the business, to prepare a profit report for your decision-making, planning, and control purposes. Some years ago a local women's investment club invited me to their monthly meeting to talk about the meaning and uses of financial statements. It was a lot of fun, and it also forced me to re-think a few basic points. These women are a sophisticated group of investors who pool their monthly contributions and invest mainly in common stocks traded on the New York Stock Exchange. Several of their questions were incisive, although one point caught me quite by surprise.

First Things about Management Accounting

The external financial statements of a business are not completely adequate for its top-level managers, despite the fact that these financials are for the company as a whole. This is not a knock on external financial statements, which are designed for the outside investors and lenders of the business and not for its managers. Managers should understand their company's external financial statements like the backs of their hands. But they need additional accounting reports that are much more detailed. One Word of Caution Management accounting is an art, not a science. There are no authoritative standards, and no generally accepted management accounting principles that govern management accounting. Tax accounting must follow tax laws and regulations, and use prescribed tax forms. External financial statements have to be prepared in accordance with GAAP. Management accounting is a wide-open game with few ground rules.

Key Point

The audit is supposed to be independent, aimed at advising stockholders about the accuracy of financial statements. In practice, you cannot rely on audited statements to objectively point out flaws in corporate financial reporting. 4. Even with the most reliable financial statements, you need to perform your own fundamental tests. Even with a movement under way to improve corporate transparency, little chance has been seen in the way that corporations report to shareholders. If you are not able or willing to go beyond the statements to perform added research, you should be working with a financial planner or advisor who does know how to perform those tests. (Chapter 4 provides guidelines for navigating corporate websites and finding additional information.)

The Name of the Game

Financial statements are prepared in conformity with standards that have been established over the years called generally accepted accounting principles (GAAP). Rarely, if ever, would you come across financial statements of a business prepared according to accounting methods other than GAAP. The minor exceptions to this general comment are not worth mentioning. (Financial statements of non-profit organizations and government entities follow somewhat different accounting principles and practices.) Audits by independent certified public accountants (CPAs) are precisely for the purpose of making sure than GAAP have been followed in preparing the financial statements (see Chapter 17). In short, anytime you pick up the financial report of a business you are entitled to assume that its financial statements have been prepared according to GAAP. The fundamental idea is to provide a well-defined set of general accounting methods and practices that all businesses should follow faithfully for...

Quality of Earnings

Professional investors and investment managers are especially alert for accounting methods that appear to record revenue (or other sources of income) too early, or that fail to record losses or expenses that should be recognized. Even though the financial statements are audited, the professionals go over them with a fine-tooth comb to get a better feel for how trustworthy are the reported earnings of a business. To think that financial reports issued by businesses are pure as driven snow is naive. People are people, after all we're not all angels. As my father-in-law puts it, There's a little larceny in everyone's heart. Just because a few cops accept bribes doesn't mean all police are on the take. Clearly the large majority of businesses prepare honest financial statements. But there are some crooks in business, and they are not above preparing false financial statements as part of their schemes.

Short Summary

You can rely on audited financial statements. The risk of fraudulent financial statements is minimal, although recently there have been several high-profile cases in which large national and international CPA firms had to pay huge settlements to investors who relied on what turned out to be fraudulent financial statements. Overall, however, this risk is very small. You might think twice before investing much time in analyzing the financial statements of corporations whose securities are publicly traded because hundreds of other investors have done the same analysis and the chance of you finding out something that no one else has yet discovered is nil. On the other hand, for a quick benchmark test you might compare the percent change in the company's sale revenue over last year with the percent changes in its net income and operating assets. Major disparities are worth a look. Reading financial statements is the best way of getting acquainted with the financial structure of a business...

Why Footnotes

A typical annual report contains more than the basic three financial statements. This chapter focuses on one additional piece of information in annual financial reports footnotes to financial statements. Footnotes provide the so-called fine print. Without footnotes financial statements would be incomplete, and possibly misleading. Footnotes are an essential supplement to financial statements. Top-level managers should never forget that they are responsible for the company's financial statements and the accompanying footnotes. The footnotes are an integral, inseparable part of the financial statements. In fact, financial statements state this fact on the bottom of each page, usually worded as follows The accompanying footnotes to the financial statements are an integral part of these statements. The auditor's report (see the next chapter) covers footnotes as well as the financial statements. In short, footnotes are necessary for adequate disclosure in financial reports. The overarching...

What Is an Investment

For most of your life, you will be earning and spending money. Rarely, though, will your current money income exactly balance with your consumption desires. Sometimes, you may have more money than you want to spend at other times, you may want to purchase more than you can afford. These imbalances will lead you either to borrow or to save to maximize the long-run benefits from your income.

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