We have seen profit and loss account in Issue-8 and Balance sheet in Issue-9. There is a relation between profit & loss account and balance sheet; which I am going to discuss in the current issue. We have to understand that relationship for better analysis of the financial statement and make a more wise investment decision.
No financial statement useful to us in isolation. We have to understand the impact of changes in one element on the other element of the financial statements which can be much use to us for knowing hidden stories of the companies. We can become better investors when we can able to understand the hidden truth behind the financial statements.
We have seen profit and loss statement in issue 8. Now, in the current issue, I am going to discuss on the balance sheet. The balance sheet is another important financial statement which is essential for analyzing the financial strength of the person and of the company.
“A Balance Sheet is a statement of the financial position of a business which states the assets, liabilities, and owners’ equity at a particular point in time. In other words, the balance sheet illustrates your business’s net worth.” – The Balance
We have seen in issue 7, that our life and businesses having a relationship & similarities and due to the understanding of our life help us to make better investment decisions.
In the current issue, I try to relate other similarities between our life and the business. I am going to explain profit and loss statement of the company with examples of our life which make it simpler to understand.
I have talked about compounding and benefits of compounding in all of the previous issues of Simple is the better series. Now, from this issue, I am going to discuss similarities between our life & making an investment and how we can learn many things in investing from our life. We also can learn many things in our life of the equity investment.
We can able to create wealth while we have a thorough understanding of the business and the phase in which it is operating. We need to work hard on an understanding of the business for protecting damage to our wealth and also as an investor, we are becoming a partner of the business not an owner of a piece of paper.