Fundamental Analysis Part 2

Financial Numbers

Trade (Account) receivables

Money owed by customers (individuals or corporations) to another entity in exchange for goods or services that have been delivered or used, but not yet paid for.

Look out for increasing Account Receivables over the quarters, as this may signify that the company has problem collecting money from their customers, which may result in bad debt.


Operating Cash Flow or Cash generated from (used in) operations

The cash generated from the operations of a company, and excluding all other exceptions and non-cash items. It is generally defined as profit before tax:

• plus non cash items e.g depreciation, amortisation, provisioning
• plus interest expense or minus interest income
• plus investment losses or minus investment gains (e.g disposal of assets, shares of associates, foreign exchange)
• plus change in trade payables (under working capital)
• minus change in trade receivables(under working capital)
• minus change in inventories(under working capital)

This is an important number to look at, as it provides an insight into how much a company is earning from its core operation, and excludes all other exceptional and non-cash gain or loss. E.g a company may be losing money from its core business, but shows a good profit due to a one-time gain from disposal of an property. This is deceiving to the eyes of the investor. It is important for a company's operating cash flow to be growing.

Though there are many more financial ratios and numbers out there, it is sufficient to consider those that I have included in Fundamental Analysis Part 1 and Part 2, to have a good analysis of a company's health. Wish you Luck!!