Income Statements

An income statement is a report that shows how much revenue a company earned over a specific time period (usually for a year or some portion of a year). An income statement also shows the costs and expenses associated with earning that revenue. The literal “bottom line” of the statement usually shows the company’s net earnings or losses.

Cash Flow Statements

Cash flow statements report a company’s inflows and outflows of cash. This is important because a company needs to have enough cash on hand to pay its expenses and purchase assets. While an income statement can tell you whether a company made a profit, a cash flow statement can tell you whether the company generated cash.

A cash flow statement shows changes over time rather than absolute dollar amounts at a point in time. It uses and reorders the information from a company’s balance sheet and income statement.

The bottom line of the cash flow statement shows the net increase or decrease in cash for the period. Generally, cash flow statements are divided into three main parts. Each part reviews the cash flow from one of three types of activities: (1) operating activities; (2) investing activities; and (3) financing activities.

Operating Activities

The first part of a cash flow statement analyzes a company’s cash flow from net income or losses.

Investing Activities

The second part of a cash flow statement shows the cash flow from all investing activities, which generally include purchases or sales of long-term assets, such as property, plant and equipment, as well as investment securities. If a company buys a piece of machinery, the cash flow statement would reflect this activity as a cash outflow from investing activities because it used cash. If the company decided to sell off some investments from an investment portfolio, the proceeds from the sales would show up as a cash inflow from investing activities because it provided cash.

Financing Activities

The third part of a cash flow statement shows the cash flow from all financing activities. Typical sources of cash flow include cash raised by selling stocks and bonds or borrowing from banks. Likewise, paying back a bank loan would show up as a use of cash flow.

Bringing It All Together

Though we have discusses each financial statement separately, keep in mind that they are all related. The changes in assets and liabilities that you see on the balance sheet are also reflected in the revenues and expenses that you see on the income statement, which result in the company’s gains or losses. Cash flows provide more information about cash assets listed on a balance sheet and are related, but not equivalent, to net income shown on the income statement. And so on. No one financial statement tells the complete story. But combined, they provide very powerful information for investors. And information is the investor’s best tool when it comes to investing wisely.

Stock exchange

I would like to make a small presentation on the subject “Stock market and securities”. I would like to structure my presentation in the following way. I will tell you first why and how companies go public, then I will tell you what stock market is and then I will tell you about the main securities traded at the stock market. And then I will make a conclusion. If you have any questions feel free to interrupt me. And now if you don’t mind I would like to start.

1

In order to expand their business and raise capital many successful companies decide to go public. To do it the company gets advice from an investment bank about how many shares to offer and at what price. The company gets independent accountants to produce a due diligence report. The company produces a prospectus which explains its financial situation and gives details about the senior managers and the financial results from previous years. The company then makes a flotation and initial public offering. An investment bank underwrites the stock issue.

2

The place where the stocks and shares of listed or quoted companies are bought and sold are called stock markets and stock exchanges.

A stock market is a public entity for the trading of company stock (shares) and derivatives at an agreed price; these are securities listed on a stock exchange as well as those only traded privately.

The largest stock markets are New York Stock Exchange (NYSE), the Amsterdam Stock Exchange, London Stock Exchange, Paris Bourse, and the Deutsche Börse (Frankfurt Stock Exchange).

Participants in the stock market range from small individual stock investors to large hedge fund traders, who can be based anywhere. Their orders usually end up with a professional at a stock exchange, who executes the order. Financial journalists use some animal names to describe investors: bulls (investors who expect prices to rise), bears (investors who expect prices to fall), stags (investors who buy new shares issues hoping that will be over-subscribed.)

Some exchanges are physical locations where transactions are carried out on a trading floor, by a method known as open outcry. This type of auction is used in stock exchanges and commodity exchanges where traders may enter "verbal" bids and offers simultaneously. The other type of stock exchange is a virtual kind, composed of a network of computers where trades are made electronically via traders.

3

Securities are Financing or investment instruments bought and sold in financial markets, such as bonds, options, shares (stocks), and warrants.

Shares and stocks are certificates representing part ownership of a company. The people who own them are called shareholders.

There are ordinary and preference shares. Preference shares are shares whose holders receive a fixed dividend that must be paid before holders of ordinary shares receive a dividend. Holders of preference shares have more chance of getting some of their capital back if a company goes bankrupt.

Bonds are loans to local and national governments and to large companies. The holders of bonds receive fixed interest payments known as principal back on a given maturity date. The most common types of bonds are government bonds – gilt edged stock and corporate bonds.

Forward and futures contracts are agreements to sell an asset at a fixed price on a fixed date in the future.

Derivatives are financial products whose value depend on another financial product such as a stock or stock market index or interest. The main kinds of derivatives are options and swaps.

Options are like futures , but they give the right not the obligation to buy or to sell the asset.

Swaps are arrangements between institutions to exchange interest rates or currencies.

Conclusion: companies need stock markets if they want to expand their business.