Developing an Equity Mutual Fund investment strategy is not easy. You have to pay attention to various factors so you don't take the wrong step. You also need to evaluate the company's financial statements.
When investing, you expect to gain the best profit value. In order to do so, you need to do the analysis and make the right decision. This is the importance of financial statements for you as an investor.
Various Types of Financial Statements
Companies have several types of statements related to their financial data. Here are several types of company financial statements that you need to know as analysis material for investing:
- Income Statement
First there is an income statement or profit & loss statement which will clearly show the condition of the company. The name itself already explains that the report will show data whether the company has made a profit or even made a loss.
This statement will include some important information related to the company's finances. Especially information about production costs, sales data, cost of sold goods, cost of expenses, and others.
Later this statement can be a reference for investors to assess the company's financial condition. Investors can use this statement as material for evaluating whether the company can still be profitable or not.
- Statement of Changes in Capital
Next there is a statement of changes in capital which is also important for investors. This is a type of financial statement that can be a crucial indicator for assessing a company's development after a long period of operation.
Through this statement, you can find out whether the amount of capital owned by a company is growing or not. This data is usually closely related to the data listed on the income statement.
The greater the profit received by the company, the greater the added value of capital. Of course, this is a positive signal for investors to invest in the company.
- Balance Sheet
The next type of statement is a balance sheet. In general, this report will provide conclusions regarding the company's financial condition.
In this report there is data regarding assets and liabilities. In addition, it also contains data regarding the company's share capital. In summary, there are 3 elements in this report, namely equities, assets, and liabilities.
- Cash Flow Statement
The company will also have a cash flow statement. This is a type of statement which function is to provide information regarding the inflow and outflow of funds over a certain period of time.
Cash flow statement in a period will also usually be a reference for the next period. So through this report you can make predictions about the company's financial condition in the future.
- Notes to Financial Statements
This type of report is rather unfamiliar and may feel foreign to investors. Usually investors only focus on the 4 types of reports previously mentioned.
However, it should be noted that this type of report is just as important as other financial reports. This note will help investors to understand all the contents of the financial statements as a whole.
Notes to financial statements have a more detailed explanation of the information or data contained in other types of reports. Through this record, investors can more easily find out what happened in the company.
Functions of Financial Reports for Investors and Companies
Financial statements have an important function both for investors who want to choose an Equity Mutual Fund instrument and for the company itself. These financial documents can provide information to optimize profits for both parties.
For investors, financial reports serve as data that will show what the condition of the company is like. Every investor hopes to invest in the right and profitable company, right?
Through analysis of financial statements, investors can find out what the condition of the company is. Whether it is good enough and profitable or not, judging from the financial data for a certain period.
Financial statements will help investors take steps. If the company's financial data shows a large profit potential, then investors can choose to invest there.
Meanwhile for companies, financial reports clearly have a huge role. This document will help the company evaluate and plan future steps so that the value of profits continues to increase.
The financial statements will clarify the status of the company, whether it is a profit or a loss. From here the company can take better steps to minimize losses and optimize profits.
In the end, the financial statements are equally needed by investors and companies to take the best steps. The goal is the same, to gain more profit from the company's operations.
Benefits of Knowing Financial Statements for Investors
Let's get to know more about the benefits of company financial statements for investors. If you want to start investing, this is very important to understand. Below are some of the benefits of financial reports for investors:
- Provide Net Profit Information
The first benefit, of course, financial statements will provide information about the net profit achieved by the company. Logically, this net profit is the main consideration for investors before investing.
Investors will find it easier to entrust their capital to companies that have high net profits. The higher the net profit achieved by the company, the better and the prospects are, and more profitable it is.
Basically, confirming the profit and loss status of a company is the easiest way to see the potential provided by the company. This can be a major consideration before you finally decide to invest.
- Simplify Company Performance Evaluation
Financial statements will make it easier for you to evaluate the performance of a company. As an investor, of course you have to choose a company with good performance and potential.
The company's performance record will ultimately affect the profit potential that can be gained. The better the performance of the company, the greater the net profit opportunities that can be gained by the company.
From here you can also predict the condition of the company in the future. The performance shown by the company in the current period can be a performance projection for the next period.
Although it does not mean that companies with good performance in this period will also come out well in the coming period. But at least there is data that you can use as a reference.
- Analyse BEP
Financial reports will also help you analyse BEP or Break Even Point. This is a point when the company's total income is equal to the amount of capital that has been issued.
This BEP calculation is a way for you to find out the breakeven point of a company. If it has reached BEP, then the company will have a higher opportunity to provide returns to investors.
The financial statements will contain information about the BEP. This is where investors can find out how much total money has been invested as well as when the company can provide a return on the investment.
- Monitor the Company's Cash Flow
The next benefit that you can gain after analyzing financial statements is monitoring what the company's cash flow is like. Analysis of cash flow is highly important, especially for investors.
Cash flow analysis will help investors to find out the actual condition of the company. This will help investors to see the flow of money in the company so that it can be used as a reference when taking the next step.
It should be noted, through current cash flow reports, investors can also make predictions of the company's cash flow in the future. So investors can feel more confident whether the company has potential or not.
This information will also help investors invest in companies that are able to grow. The theory is easy, if a company has good cash flow then the growth speed will be good.
- Provide Data on the Company's Debt Amount
The financial statements will also provide information about the amount of the company's debt. Not only do investors need to monitor cash flow, but they also need to know how much debt the company has.
The amount of debt is also crucial data for an investor. Every company will usually have debt, but the amount can vary and must be ensured within safe limits.
If a company has too much debt and its financial status is not very good, then its potential decreases. This can be a consideration for investors before investing there.
Investors are better off choosing companies with good financial conditions and the amount of debt is still within safe limits. This condition will be more balanced and allow companies to pay debts without disrupting financial stability.
Start investing in Equity Mutual Funds with DBS Treasures
After knowing the various financial statements that can be used to analyse Mutual Fund instruments, you can more easily and more confidently choose an Equity type Mutual Fund.
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