Balance sheet analysis

[@TheFinanceStoryteller]

Enjoyed this video? Then please subscribe to the channel, and watch more finance case studies of companies like Amazon, Facebook, Google, Tesla and Walmart in this playlist: kzbin.info/www/bejne/hnqciWiPl8qelac

[@KevinStClair-ln5ir]

Hands-down the best explain that I've ever heard on how this works. New sub here!

[@TheFinanceStoryteller]

Thank you very much, Kevin! More on Apple's financial statements in this playlist: kzbin.info/www/bejne/a5O6oJempreGj7c

[@he5499]

this will be my Bible! thank you for making this valuable lesson

[@TheFinanceStoryteller]

Happy to help! It was fun to research and make. Please spread the word! More information about some of the individual terms in this playlist: kzbin.info/www/bejne/pJKXm5V3ncSpobM

[@Ratatatataw]

Hi, I just want u to know that ur content really helps me a lot. Thank you for making my study easier!

[@Ratatatataw]

I ended up subscribing btw

[@TheFinanceStoryteller]

Happy to hear that! Please spread the word to friends and colleagues.

[@happytoilet1]

thank you very much for your lessons. Now my question is why Apple buyback their stocks? what is the impact to the company, good or bad? Do you have any insight? @@TheFinanceStoryteller

[@Michael.design]

Great vid again! Would be nice if you could turn this into a series or something, reviewing a companies balance sheet once in a while. Those of Nike and Google for example :)

[@TheFinanceStoryteller]

Hello Michael! Great to hear from you again. Yeah, I love doing these balance sheet reviews. Planning to do one on Tesla as soon as their calendar year 2022 annual report comes out (probably February). I did Alphabet Inc (Google) a few years ago kzbin.info/www/bejne/jny2gKatepKSbMU , might be interesting to revisit that company's balance sheet for year end 2022.

[@FRANKWHITE1996]

Great content. Thanks for sharing ❤

[@TheFinanceStoryteller]

Good to hear from you! Thanks for your support during all these years.

[@FRANKWHITE1996]

@@TheFinanceStoryteller 🙏🙏🙏

[@tarekalsherif57]

Thank you so much for the professional advanced presentation of Apple financiala❤

[@TheFinanceStoryteller]

You're welcome! I have recently done a summary video on their FY22 income statement as well kzbin.info/www/bejne/faLIe6Sibap2etU , and over the years I have covered various items such as their EPS kzbin.info/www/bejne/ionNnISvarB9pck , cash flow, etc.

[@Erez.Levi.Stocks]

How nice that you came back to us, you were missing on KZbin! It's always fun and very helpful to watch your valuable videos. I have to tell you that for two months now I have been keeping an eye on this matter that the capital of the shareholders of Apple has decreased drastically and this raises an important question for me that I wish you would give me your opinion on, Every year since 2018, Apple has purchased over 70 billion dollars of its own shares, does that mean that if in 2023 they buy at a price of 70 billion dollars, they enter into a deficit in the shareholders' equity? The decrease in equity changes a lot of negative data in the Apple company such as P/B and others.

[@TheFinanceStoryteller]

Hello Erez! Agree with you that it will be interesting to see what happens in FY23 at Apple. We can track quarter-by-quarter (10-Q filings and earnings releases), to see how equity on the balance sheet develops. I have been trying to find Apple corporate presentations to see if they provide any "guidance" (estimates/commitments for future financial results), but unlike many other companies they don't appear to be publishing guidance (or my searching skills are lacking and I simply did not find it even though it might exist). How equity develops all depends on how much net income is generated on one hand, versus how much is paid out in dividends plus share repurchases on the other hand. So if Apple continues to grow net income year over year, and keeps dividends and share repurchases at a similar level as in the past, there will be no problem. If they keep going with the equity erosion historical trend described in the video (2017-2022), then it will still take a few years before equity becomes zero, or they enter into a deficit. If that ever happens, it will surely raises questions from the NASDAQ regulatory team. Also agree with you that all kinds of ratios like P/B are skewed because of this. My take is that the most important reason for Apple to do share repurchases is the window dressing effect of the earnings per share going up through the denominator of that calculation: kzbin.info/www/bejne/ioO8kKCgnMyAh7s

[@shrikantbadge3978]

Very very well explained

[@TheFinanceStoryteller]

Thank you very very much for the kind words! More financial case studies like this in this playlist (including one on a recentTesla balance sheet that I am pretty excited about): kzbin.info/www/bejne/aqm3Zn2werV7qtk&pp=gAQBiAQB

[@MsGrazy13]

Thank you for your help! Very useful video!

[@TheFinanceStoryteller]

Great to hear that! Here's my playlist with financial statement case studies, nothing like going through the numbers of a real world company to learn new terminology and review unusual situations: kzbin.info/www/bejne/fqKQZWeGfcx0n7c&pp=gAQBiAQB It's got the Microsoft income statement, Tesla balance sheet and cash flow statement, etc.

[@kirankodavati420]

Great content 👍🏻

[@TheFinanceStoryteller]

Glad you liked it! Thank you for watching and commenting. :-)

[@Mickk0205]

20:17 : "Those very large ahghagahggah items on the balance sheet!"

[@TheFinanceStoryteller]

Yeah, was getting a bit tired after several takes of vocal recording...

[@amar.mohamed]

A very useful video. Thanks indeed!

[@TheFinanceStoryteller]

Glad you enjoyed it! I have also done a balance sheet analysis for Tesla, and income statement as well as cash flow statement walkthroughs for various companies (Microsoft, Walmart, etc), see my finance case studies playlist: kzbin.info/www/bejne/aqm3Zn2werV7qtk&pp=gAQBiAQB Please consider supporting the channel through a membership: kzbin.info/door/QQJnyU8fALcOqqpyyIN4sgjoin

[@vikasarsid1299]

Thank you for this amazing valuable video.

[@TheFinanceStoryteller]

Happy to hear that! Thank you for watching and commenting. 🙂

[@elcorazon2918]

thank you for your efforts

[@TheFinanceStoryteller]

It's my pleasure! I enjoy diving into these, and then summarizing what I found in a video. More finance case studies of real world companies in this playlist: kzbin.info/www/bejne/hnqciWiPl8qelac

[@MsAdaCat]

This was very interesting! Thank you!

[@TheFinanceStoryteller]

Glad you enjoyed it! More finance case studies on the financial statements in this playlist: kzbin.info/www/bejne/hnqciWiPl8qelac

[@binny741]

great explanation...thank u

[@TheFinanceStoryteller]

Glad it was helpful! More financial statement case studies using examples from real world companies in this playlist: kzbin.info/www/bejne/hnqciWiPl8qelac

[@konstancyja82]

Well done video, bravo! 🎉

[@TheFinanceStoryteller]

Thank you! 😃

[@MrWickedSalsa]

Hi The Finance Storyteller, Have you made a video about "Variance analyses"? or about "balance sheet reconcilliation"?

[@TheFinanceStoryteller]

I have a video on "Price variance vs efficiency variance": kzbin.info/www/bejne/jIm4hqB5itKWnpY and one on how to construct graphs for an EBIT / Operating Margin waterfall chart: kzbin.info/www/bejne/rp_Vgnikac92qaM Hope these help!

[@MrWickedSalsa]

@@TheFinanceStoryteller thank you

[@simonrutter]

Hello! What would the issue be with shareholder equity getting closer and closer to 0? What risks does that pose to apple given the rest of the financial statements clarifying their true financial situation? Thanks for the great video!

[@TheFinanceStoryteller]

Hello Simon! Agree with you that looking at all financial statements holistically gives you the best picture of a company's financial situation. What makes me uncomfortable about the "equity erosion" is that equity is the buffer against adverse unexpected events and/or bankruptcy. There are many "known risks" for Apple (e.g. being very dependent on a low cost labor supply chain in China) that could cause significant trouble when they materialize. And then there are the "unknown unknowns" (Black Swans) that could occur. If/when they do, you'd rather be robust than fragile. More equity builds more robustness. "But Apple is such a strong company, chances that they will ever get in trouble are slim to none".... well, just take a look at the graveyard of companies formerly known as world-class (e.g. the list of companies no longer in the Dow Jones 30 is very long, either because these companies are now mediocre or non-existent altogether), and imagine anybody making a similar statement about them at the time they were at their peak.

[@markmower1746]

I work with financial statements all the time so I didn't learn much from you today Dutchman. But I did learn this week is don't text "lol" (laugh out loud) to a Dutchman because that means "fun" in your language!

[@TheFinanceStoryteller]

LOL!!!! ;-) Let me share another funny one then..... if you text "rofl", then most Dutchies will associate this with the Dutch word "roffel", which means drumroll. 😎

[@markmower1746]

@@TheFinanceStoryteller FUN!

[@lang1892]

do tesla next

[@TheFinanceStoryteller]

Agree! Once their 10-K annual report is out, probably in February.

[@lang1892]

@@TheFinanceStoryteller huge fan of yours. i have turned from pretty much financially iliterate to being able to read earning reports reliably all thanks to your videos. thank you for all you do

[@TheFinanceStoryteller]

That's awesome!!! So happy to hear that. All of my finance case studies are in this playlist: kzbin.info/www/bejne/hnqciWiPl8qelac And I look forward to doing more of these!!!

[@rajjarsocial6378]

Is there a way to calculate the age of the asset (non-current) based on short & long term loans ? Might be hard with large companies but should be easier with smaller companies that have few assets like trucks or cars.

[@TheFinanceStoryteller]

Hi Rajjar! You are assuming that there is a match between the duration of the loans and the useful economic life of the assets. That is not always the case. For example, a company might finance 10-year fixed assets by 2-year loans that are renewed 5 times. For Apple specifically, there is useful information in the 10-K annual report, Note 5 - Property, Plant and Equipment. Gross property, plant and equipment as of September 30, 2023 is $114.5B, and Accumulated depreciation $(70.8)B, so 62% of the assets have been depreciated. Most companies publish some information about the useful economic lives as well. Land and buildings have longer useful lives than machinery, equipment and internal-use software.

[@rajjarsocial6378]

Thanks@@TheFinanceStoryteller ! Very useful video series.

[@rajjarsocial6378]

I was reading standards on chart of accounts in Australia, and I guess most of the accounting software implement these standards. For example, under non-current-liabilites for "Lease Liability", it says , "Any long term lease agreements (over 12 months) such as motor vehicle agreements should be recorded against this account. Separate registers should be kept for each agreement and should include the current year as well as the future year obligations.". So I was guessing the info around age of the matching asset and the associated loan & loan term is available but maybe not published as a financial statement for others (available only internally).

[@TheFinanceStoryteller]

Aha! Thanks for the clarification. You have stumbled upon the accounting standard IFRS16, effective 2019. This basically requires lessees to recognize right-of-use assets and lease liabilities on their balance sheets, "extending" the length of the balance sheet on both the left (assets) as well as the right (liabilities), and combatting the age-old window dressing trick of off-balance sheet financing.

[@Erez.Levi.Stocks]

Hello again Philip, There is something interesting that I wanted to interest you in. Apple's equity has been declining for several years in a row as you said, but if you check Microsoft company can be seen that the equity only grew, unlike Apple. It is very possible that when the capital of Microsoft's shareholders grows too much, they will start paying more dividends and will buy their own shares in very high amounts. With your permission I have another question, DSO is how long Apple gives a "free loan" to its customers as you said. If I want to calculate how long Apple receives a "free loan" from its suppliers, what calculation should I make?

[@TheFinanceStoryteller]

Hello Erez! Agree with you on Microsoft. In their latest financial year, net income of $72B far exceeded the sum of share repurchases $33B and dividends $18B. Microsoft seems to be prefer to use excess cash on business acquisitions and CapEx. The metric on the side of accounts payable is called DPO (Days Payable Outstanding). On purpose I did not include a discussion of this in the video, as the calculation really depends on the nature of the business. Some people suggest DPO = Accounts Payable $ divided by 12-month Cost of Goods Sold (COGS) $ in the income statement, times 360 days. This would be appropriate for a buy-sell trading company or a small manufacturing plant with little overhead. However, for a huge multinational such as Apple, their stream of purchases might include things that end up in COGS, others that end up in SG&A or R&D, or even on the balance sheet through CapEx. Basically what you would like to have is Accounts Payable $ divided by 12-month amount of total purchases that went through accounts payable (as opposed to payroll etc.), times 360 days. That "total purchases" number is not available publicly in an annual report....

[@KrishanSingh-gz9op]

What are " expenses incurred to start a new business"? Are they shown on balance sheet? Are they like godwill & intangibles?

[@TheFinanceStoryteller]

Expenses incurred to start a new business could be rent for an office, registration fees to set up the business, the cost of developing a website, etc. These are expenses that go into the income statement (also called profit and loss statement).

[@Erez.Levi.Stocks]

Hello Dear Philip. How are you? i hope you doing well. I have question about AAPL, we can see in the last decade Capital expenditure has remained pretty much the same but the revenue keeps growing. How do you think the company manages to do this? Usually, companies invest more money to generate more revenue but this does not apply to Apple I would love to hear your opinion on the matter, Thanks in advance

[@TheFinanceStoryteller]

Hello Erez! Love your channel name. When do we meet for a cup of coffee? 😊 Capital expenditure at Apple is indeed fairly low at $11B per year, as the vast majority of its manufacturing is outsourced to Foxconn. We can find in item 2 of the annual report, that “… the Company owned or leased facilities and land for corporate functions, R&D, data centers, retail and other purposes…”, in other words various functions other than manufacturing. In absolute terms, Apple spends a huge amount on Research and Development: $26B in FY22, up from $22B in FY21 and $19B in FY20. In relative terms, that's still only 7% of revenue. And similar amounts for SG&A, which includes their continued focus on building their brand. I personally don't use any Apple devices, but know plenty of people that are fanatic fans and will even give their last penny to Apple. I guess that during the pandemic, when people couldn't spend their money on holidays or dinners, they bought a lot of new Apple devices. In their current fiscal year, FY23, Apple is struggling to grow revenue, actually posting a YTD decline of 3% for the first nine months, with product revenue being down and service revenue being up. Hope this helps!

[@Erez.Levi.Stocks]

@@TheFinanceStoryteller Thank you very much for your reply, it helped me a lot and thanks to you I will start researching the Foxconn company in depth. Glad you liked the name of the channel and I really hope we can sit down for a coffee sometime and chat

[@TheFinanceStoryteller]

If not face-to-face, then virtual would also be nice.

[@Erez.Levi.Stocks]

@@TheFinanceStoryteller i would love to do it sometiems.

[@shivjayvolvloikar]

Hello story teller, can uou please put some light on why apple is buying back its shares??

[@TheFinanceStoryteller]

Hello Shivjay. There could be multiple reasons for that. In many cases, the official company announcement will say "to return value to shareholders", meaning that by buying back shares the number of shares outstanding will decrease, which increases its scarcity and drives up the price of the remaining shares. Shareholders can then sell the shares (potentially) for more than they bought them. Unofficially, it is a "window dressing" action, as the number of shares is the denominator in the calculation for EPS (Earnings Per Share). See my analysis on Apple from a few years ago: kzbin.info/www/bejne/ioO8kKCgnMyAh7s Additionally, if you are an executive of the company and have stock options that you can exercise when the share price hits a certain price, then it's very nice if you can "artificially" increase the share price.

[@shivjayvolvloikar]

Got it sir... 🙌🏻

[@melvinbarnes6652]

I don't understand why the discovery of $-6B in working capital was a good thing? I would think its the opposite given the liabilities are higher than the assets. What am I missing?

[@TheFinanceStoryteller]

Hello Melvin! Good question! I am approaching working capital from the perspective of efficiently using the cash that is available to the company: If a company has accounts receivable on their balance sheet, it means they give free loans to customers (invoice sent to customer, but cash not received yet). If a company has accounts payable on their balance sheet, it means they receive free loans from suppliers (invoice received from supplier, but not paid yet). If a company has deferred revenue on their balance sheet, it means they receive free loans from customers (payment received, service not delivered yet). Etcetera. So what you want to do is minimize accounts receivable, minimize inventory, maximize accounts payable, maximize deferred revenue. More on working capital management (in general, as well specific videos on DSO and inventory management) in this playlist: kzbin.info/www/bejne/mWbMmpqZetWjkNk&pp=gAQBiAQB

[@melvinbarnes6652]

@@TheFinanceStoryteller Ok, I got you. You're essentially saying they are efficiently leveraging their debt. Thanks for responding and great video!

[@TheFinanceStoryteller]

Getting your suppliers to finance you saves you a trip to the bank! 😉 More real world case studies (Microsoft, Tesla, Walmart, etc) of income statement, balance sheet and cash flow statement in this playlist: kzbin.info/www/bejne/aqm3Zn2werV7qtk&pp=gAQBiAQB Every company has some unique situations that can make one or more of these financial statements stand out from the crowd. The more income statements, balance sheets and cash flow statements I go through, the more I learn! 😎 Please consider supporting the channel through a membership: kzbin.info/door/QQJnyU8fALcOqqpyyIN4sgjoin

[@mertyesilgoren6043]

one thing i dp not understand is that why minus 6.2 billion working capital is good thing? ypu have yo pay more then you are gonna get

[@TheFinanceStoryteller]

I agree that the idea of negative working capital being a good thing is not intuitively clear to everyone. Here's an example. Situation A: accounts receivable $200, inventory $100, accounts payable $50. Working capital is $200 + $100 - $50 = $250. As assets exceed liabilities, the company has to finance the net $250 by either debt or equity. Situation B: account receivable $100, inventory $50, accounts payable $200. Working capital is $100 + $50 - $200 = ($50). The "free loan" from suppliers through accounts payable exceeds the sum of what is needed to provide "free loans" to customers (accounts receivable) plus inventory. Negative working capital situation. Great for cash flow! Apple's working capital is similar to situation B above. Learn more in my videos about working capital management: kzbin.info/www/bejne/mWbMmpqZetWjkNk