Financial Statement Analysis – Part 6- February 2022 – Writing the Paper

Unknown: everybody welcome to
financial statement analysis part six. My disclaimer and
copyright notice the information opinions in this presentation
are those of the author only and not the author's employers are
affiliated or organ affiliated organizations, including but not
limited to Irvine Valley College and the South Orange County
Community College District. The presentation is for educational
purposes only and does not constitute any legal or
accounting advice whatsoever. This presentation is copyright
2008 to 2022 by Bennet Tchaikovsky, All rights are
reserved any distribution is strictly prohibited. So our last
topic here is we're going to be writing paper Okay, so and what
we're going to do is we're going to go ahead and incorporate a
lot of different things that we had done previously.

But the
first thing we're going to go through and do is we're going to
set up a Google Doc and we'll call this a sample paper Okay,
so in terms of going through and doing this when we do write a
paper we want to make sure that we have a header so let me just
find one mm let's see if we can do
another one how we can go like that so this actually not a bad
one let's go ahead and use this so
this is going to be spring 2022 Whatever your accounting courses
Okay, so what we're going to do here is we're going to kind of
follow go through and follow the various different steps that I
have laid out here and again depending on your class so the
first part is basically why did I choose so the first part is why did I
choose that company? Based on the list that was provided to me
by my instructor I chose to look at meta platforms NASDAQ
Facebook as the company had recently both call us meta as
meta recently as meta recently saw a strong saw a significant
decline and its stock price and has recently been in the news
due to the whistleblower Francis How can I just make sure I
spelled her name correctly Okay, so right over here.

So, I this
is how Francis Hogan right over here. So, this is I found her
coming out and discussing Facebook was was very very
interesting. Okay, so, discussing about Facebook's AI are
discussing about Meta as behavior towards users. Okay so
that's my introduction in terms of why did I choose the company
about meta tags taken from the tank a filed by meta on so we're going to go over here
to met a platform so I'm going to go to the 10k and that 10k
was filed on February 3 2022. And we can find out the if you
look at this here, the February 3, this is going to be
indicating the date that their their document was filed.

so I've given attribution but I can also choose to do too if you
want to, in the paper, you don't have to do this you can also
give me the link okay, I would probably make this a little bit
smaller. But here we go. Okay, so when we look at the 10k What
you're going to find is you're going to see part one they're
going to talk about their business and so if you look over
here, they're going to give an overview of the company and
we'll talk about the competition and the like. So, what we can do
at this point is we can go ahead and copy this we can go ahead
and copy this right over here. Now could I find a better meta
got what is this God meta platforms so welcome to Mehta Okay, so who we are Company Info Okay, so our principles all this other
kind of fun stuff, our history. Let's see if we can find an
about meta Okay, so building the metaverse.

Wow, they're going
through they're all in on the on the Wow. Okay. So here are all
their different technologies. So if I found something here, let's
go to ambassadors. And let's see over here company info, see we
can find out it's taking us back over here. Who we are welcome to
metta. And I'm just going to copy it from the 10k. Alright,
so enough of that. Alright, let's go back over here. So I
copied and paste and let's see what happens. Okay. So when we
go through and do this, let's let's go ahead and metta builds
technology that helps people connect. Mehta's. useful and
engaging products enable people to connect and share with
friends and family throughout through multiple multiple mobile
devices, personal computers, virtuality headsets, wearables
and in home devices, and I can just go ahead over here and I
can just do make this a little bit easier if I do a find and

Okay, so metal, it's a meta
build technology that helps people connect. But it also
helps people discover and learn what is going on the world
around them. And so right over here to the screen, which Mehta
believes is the next evolution in social technology meta
reports. antral results for two segments family of apps and
reality labs for family of apps which generate all of our
revenue from selling advertising placements to marketers.

Ads on
our platforms enables marketers to reach people based on a
variety of factors. And this is where it gets creepy. Whatever
here so our products our family of apps includes Facebook's for
old people like me right over here, and we can kind of just
put it this in here products include it's a place
for people okay? So Instagram okay, you see me do my, I'm
terrible at this some of this stuff. So just appreciate your
patience as I try to navigate through this. Okay, so look, by
the way if we're doing this in real life, but we also want to
know is how do we go through and there we go. Okay. So I can kind of do the same
thing over here.

This way you want to take Professor Carolyn
has sois her variety of different classes that she
offers. Okay, so this is about meta, which we basically have
taken from their SEC filing. Right. So again, I would
appreciate if you could try to make this as like get rid of the
weeds. The other thing we want to do too, is you're going to
share this with me if you're in my class. And the other thing
that I'm also going to do as well as I'm going to go ahead
and put down here, I want to insert page numbers. And I can
just do that over here like that. Okay, so let's go look at
the next thing. Okay, so about the company, about the
comparable company, let's talk about why we chose Twitter. So
let's kind of a, b, c, about Twitter. Okay, the other thing I'm just going
to go ahead and do up here is like let's also just kind of
change the font to be consistent. We'll make this 12
point. Okay.

So about the comparable company. Now, here's
what I want to do, because I went through, and this is where
I can kind of use the information that I've already
done. So companies comparable. And I'll just talk briefly so Twitter was chosen as Twitter is
listed. Twitter Inc. was chosen as Twitter is listed as a
competition by meta. So if we look over here, and we see under
the business so if we come back over here,
and we list on the competition, we can kind of see that Twitter
is one of the one of the competitors of Facebook. So what
we'll say here is that Twitter was chosen as Twitter's is
listed as a competitor by meta Additionally, I thought that
because peep that people or users can post streams of
thought on to Twitter.

They have the same capability using some
of metas platforms, including Instagram and Facebook. Okay, or
Facebook what you called Internet for the elderly like
me, alright, so that's about the comparable company what makes it
comparable? I could also maybe perhaps state that although
Twitter is not directly comparable in size or market
capitalization fair activities are somewhat are are competing with Facebook with metta. Okay. So that's all you really need to
say in terms of that front. And again you can you please feel
free to use. So please feel free to use what you said in the
earlier part that I had we went through and posted about why you
went through and chose meta. Okay? So stay the two ratios
that were selected and why we selected the ratios. So. Okay,
so the first ratio that was selected was the return on
equity ratio, second ratio selected was the return on
assets ratio. Okay. Now, what I want to do here, because I want
to say why I didn't choose from certain groups, and if you go
back and watch the video that I did, when we were going through
in selecting them, what you'll remember is when it came to the
liquidity ratios, liquidity ratios are not selected as both
Facebook and both Mehta and Twitter are in relatively strong
financial health and have the ability to pay down their
current obligations.

Okay, I we can also say over here coverage
ratios are not selected because Mehta has no debt. Although Twitter has debt, the focus on our paper
is on Mehta and therefore, these coverage ratios were not
selected. I mean, just make sure I've got coverage leverage
ratios were not selected. So again, I'm telling you know, why
did I not go through and choose certain types of ratios? So
again, it's because for our for our situation here, they don't
really apply to these do not really go through and apply to
Mehta, which is our primary, which is our primary company.
Okay, so we've got that so far. And now we're going to go ahead
and talk about well.

So, basically, we chose the return
on equity ratio, as both companies enjoy a relatively
large amount of shareholders equity relative to total assets,
additionally, and so, and the return on assets ratio was
selected to see how Oh, what do we say the return on assets
ratio total asset turnover ratio so
over here we're trying also to see how efficient see how
efficient the companies were, and using assets to generate
revenue now what I want to do over here, as I want to show,
let's make sure we're going through and citing when I'm
using the various different different ones over here.

what I want to do, and this is not the proper way to go through
insight, but that's really not what I'm looking for and over
here so for the return on equity
definition, we're just gonna go ahead and and put these up here,
just so we can so we chose return on equity
comm we can say is how efficient the company isn't generating
profits, so and how efficient the company is at generating
profits. Okay, so I'm going to do here. So when I go ahead and
put this over here where this belongs, I'm going to go ahead
and shrink this down. Okay. And we're going to go ahead and here
and we'll also go ahead and shrink this down. Okay, so,
again, just make sure that those links are there for me to go
through and use. So the two ratios that were selected, you
do not need to say anything about the price to book or price
to earnings. Rather, we're just kind of stating what those what
these ratios were.

Okay, the next step is state the two
ratios and then give information from the ratios give your
conclusion. So what we need to do at this point is we're going
to basically describe really briefly return on equity is
calculated by taking net income and
dividing by total shareholders equity by average shareholders
equity. Okay, so that's what we can say. So what we want to do
is we want to go to the ratios that we went through and used
and we're going to go ahead and bring those in. So we're going
to go ahead and go to return on equity.

And so the return on
equity for meta platforms was 31.1%. Maybe just go ahead and
copy this over here. And let's see what this looks like when we
bring it in. There we go. That works maybe make this like this. There
we go. Okay. So next thing we want to go through and do. I'll
say this is for meta up for meta. And now we're going to
have for Twitter. So let's go ahead and pull this information
up over here for Twitter.

Okay, and I'm going to do something
right over here to fix this before I move forward. Okay, so,
let's go ahead and one other thing that I want to do For
Twitter Okay, so what we're now going to go through and state is
that comparing the two companies, Mehta has a greater
return on shareholders equity. Now, this is where we want to
kind of incorporate some of the issues with Twitter. And also
talk as well about is the the impact of stock compensation
expense. And this is going to get into our it's only
applicable for these companies. Because if we look at the
accounting add ons for Facebook, right over here for Twitter, we
were at a loss of 221. And stock compensation expense was 629.
And so what I want to do here is I want to say that for Twitter,
it appears that again, this is from my prior analysis, when I
was going through and looking at these companies briefly going
through and at first glance Twitter's return on equity is
significantly less than metes.

However, it must be noted that
Twitter had a significant income tax
expense during the year ended 1231 20. Additionally, if stock
compensation expense was added back to the net loss of Twitter,
for the year ended 1231 21 B return on equity would be
significantly impacted. Okay, so here's what you're
gonna want to do. And this again, is just a pluggable to
these companies. But this is how I want to go through and explain
it. So if I say it's 408492. And what I can do is I can come over
here but I can now say is redoing, pre calculating the ratio with this information,
the return on equity for Twitter would be 408492 divided by
67638641 or approximately. are approximately 5%. However, this
is significantly less remains significantly lower than meta. If Mehta added back its stock
compensation expense for the year ended 1231 21. are now
going to go ahead and do is we're now going to go ahead and
show this over here.

Okay and if we say recalculating the
information that the return on equity for Mehta would be 48 534 divided by 126585 are 38.3% which is a
pretty decent bump and significantly higher than meta
so using this ratio exclusively meta and what we're gonna want
to say over here is we can basically say that meta is more efficiently generating
profits over Twitter okay so right over here this is the
return on equity and so this is how I would go through and do by
prepare my analysis let's now go ahead and do the same thing for
the next one which is the total asset
turnover actually let's see here the next second ratio was like
it was the total asset turnover okay so for this one we're now going
to do is I'm just gonna copy this because I want to kind of
use the same format for both and I'll just go ahead and update it so ratio to total asset turnover total asset turnover is calculated by taking revenues
and dividing by average total assets okay over here for meta so let's get
to my total asset turnover for meta platforms okay then we'll go over here to
Twitter Okay, so comparing the two companies Mehta has a
greater hat meta is generating revenues more
efficiently Okay, let's see what we said over here.

We want to
use that same language. Basically meta Okay, so
comparing the two kind of Metallica is generating revenues
more efficiently from its total assets at an almost Two times
rate for the year ended 1231 21 And what this really means is
that point three seven times two is going to be equal to point
seven four almost two times of metas point seven to five return
on total asset turnover for the year ended 1231 21 Okay so right over here so we've kind
of gone through and have talked about you know so far it looks
like metas winning on on these different sides so let's go
ahead and take a look at the next one the next thing we're
going to go through and talk about are the accounting add ons
and we want to discuss if these add ons were material to our
company or to the comparable company so when we talk about
the accounting add ons when we're going through and doing is
we're talking about the stock compensation expense so let's go
over here okay.

So accounting add ons as defined by our
instructor are as follows stock compensation expense to right of use assets and three goodwill and other intangible assets although required to be although required
to be included in our financial statements BS add ons can may materially distort the
financial results Okay, so first talk about stock compensation
expense so, for meta we're going to do over here is we're going
to go to our counting add ons for Facebook for meta and what we'll do is one other
thing we're going to add here is a percentage pre adjusted so you
can see here so for as a percentage standpoint this is
about 23% net income and this is roughly about 18% of net income
Okay, so from meta might come over here and we'll make this a
little bit bigger so we can kind of fit it all in Okay, so, base so for stock stock
compensation expense is materially significant for Mehta as the amounts
represent more than 5% of the meaning of the calculated net
income just note something over here it's not necessarily going
to be 5% it could be a smaller amount but for this purpose here
it's it's big.

So for Twitter when we look at Twitter, go
ahead and do the same thing over here for Twitter and when we go through over here
this would be more of a percentage of unadjusted net
loss which is always fun to go through and to do Okay, so for Twitter so let's go ahead and put the
summer here so stock compensation expense for Twitter
is more materially significant as if then for meta because if the stock
compensation expense is added back, Twitter would become
profitable for the year ended 1231 21 So that's the first
accounting going through and doing the first accounting add

Okay, so, stock compensation expense. This is and I'm going
to, I'll share this with you and you can are free to copy this.
This part of it just make sure you say it's my instructors. So,
Tchaikovsky said it stock compensation expense is
considered to be an add on as when the journal entry is made,
stock compensation expense is being debited Wow additional
paid in capital common stock is being credited by our instructor
and you can also see yourself but he does blame it on me our
instructor believes that the stock compensation expense
artificially deflates retained earnings and you can say whether
or not you agree I blank with our I agree.

Slash disagree with
my instructor because it say why you agree or disagree with me. I
have no problem at all. If you disagree with me. That's
absolutely fine. We are all entitled to have multiple
opinions in the metaverse. Haha. Okay. So, right over here now
let's talk about the next one. So our next add on is going to
be operating leases. Okay, so now we're going to get Okay, so
it was right over here. Okay. And 29 At the beginning of 2019
as of January 1, 2019 publicly traded companies recorded up
began began to record leases operating leases as both a asset and liability on the company's financial
statements our instructor believes that this is an add on as if we are leasing office space the
owner of the office space is including the office space as an
asset on their balance sheet. And by recording an operating
lease as an asset and liability i this process tends to inflate
a bad the financial statements of companies and the United
States Okay, so over here, what I would like you to do tell me
why you agree or disagree with a statement? There's not a
incorrect answer, I will not be upset with you if you disagree
with me.

Again, we're all entitled to our own opinions.
Okay? So for meta matter has metas operating leases.
Actually, here's what we're gonna do with this. We're gonna
go ahead and we're also going to say goodwill Actually, let's do
this okay. So, we can simultaneously do this over here
and let's combine this with letter C okay. So, goodwill and
intangible assets according to Investopedia when computing
computing the market the price to book ratio server here
competing in a price to book ratio assets the market the
market value of a company is divided by net assets the net
assets of the company is defined as total assets less intangible
assets goodwill and liabilities. Okay, so, what
we're gonna do here is we're now so for betta the impact of
operating leases and goodwill and intangible assets was as
follows So if we come over here and let's go ahead and go to
meta it's going to meta platforms okay okay, we can get rid of some rows here Yeah, again, Michael Salviati, who also
teaches with me at Irvine Valley, I did a presentation,
he's all dude, you gotta clean this up.

Your work is just like
terrible, and I totally agree with them. So here we go.
Alright, so this is how we're going to go through and show and
I will go ahead and do the same thing over here for Facebook.
Excuse me for Twitter okay. And with here, we're
really not going to be commenting on this directly,
we'll kind of do that when we get to the price to book ratio.
So that's really what the purpose of this part of it is.
Sometimes pull this up. Okay. Okay, so here we go. So this is
basically for Twitter. Okay, so this is what we're going to go
ahead and do. So now we're going to do is we've identified the
accounting add ons.

Let's go to our next topic. So. So actually,
what we should say, though, is that are the operating leases
material to each of these companies? So what we can say
is, are the operating leases material? Well, it's definitely
going to be greater than 5%. Because there's 1.127. So if I
take 1.1 plus 12.7. And I divide this by 165. It's about 8%. So
when it comes to the AR these material, I would tend to tend
to say yes, so what we'll say is both the operating leases and combined goodwill intangible
assets are material to mete as these exceed 5% of total assets.
So I'm not going to do this here. But what you would say is
like lease liabilities of proximately 13 point 1 billion
over 160 6 billion to be equal to this percentage, the goodwill
plus and intangible assets of approximately 20 billion, just
combining the numbers divided by 166 billion is approximately
this percentage.

Okay, so for meta excuse me for Twitter. We would probably say or
material to Twitter. As these amounts so lease liabilities are
approximately 1.3 billion of the 14 billion have total assets
okay goodwill and intangible assets are approximately 1.4
billion 14 billion and just we would show the percentages here
okay. So our next one is to show the computation for the price to
book ratio and conclude on what the ratio reflects okay. So, for
the price to book ratio and this is letter F okay so the price to book ratio takes
the market value of the stock and divides the result by assets
minus by net assets that assets are defined as assets minus
intangible assets less like I just said it's just going to
copy that peer So, let's copy this right here okay so let's go ahead and bring us
up over here for meta Okay, so the price to book so what I want
to do here is let's show the list go ahead and show the whole
computation and that looks kind of bad.
Okay, hold on.

Let's go ahead so if you have your paper linked
and I'll be able to look at this on the paper so we'll just go
ahead and take let us do this part okay, so this is for meta
and then over here for Twitter okay so based on the price to book
ratio Twitter is praised slightly lower than that meta
Okay, so, when we look at this how do we how do we come up with
this? How do I know it's price low or well this is basically
trading it 4.62 Times Book value this is being traded at 5.3
Times Book value.

So it's probably slightly lower than
that of meta so pricey slightly lower than that a meta. Okay, what else can we say about the price to book
ratio? Well is this is this something that we're we're kind
of seeing or is this are these companies overpriced or not? I'm
not going to conclude on that here. But again, I think what I
would want to do at this point based Twitter is slightly lower
than that of meta. Some would potentially consider actually
here we go that then that is slightly lower meta meta, in
terms of a price to pay ratio okay now we're going to conclude
Thank God this video will never end okay. Based on your
information above would you recommend an investor A bar
invest in the company if you were an investor What do you
recommend a holder sell? Okay, so conclusion let's what do we
want to call this call this I call this our conclusion
conclusion Okay, so what I want to do is I want to kind of talk
about the ratios here so even though Twitter even though
Twitter's price to book i value is lower than that of meta okay
even though it's lower than that of meta meta has a stronger return on
shareholders equity and has a better return on total assets
than that of Twitter therefore by looking at the ratios alone
therefore by looking at the ratios alone this may not be the
necessarily the best way to evaluate the companies Okay,
now, here's where I can talk about things outside of the

And so when you're going through and doing this,
just make sure that you're using data that's you know, like
historical data let's go give me I'll give you an example. So SC
so like let's talk Twitter stock price Okay, so if I do a max so
Twitter is presently trading Twitter as of to 2022 is trading
at approximately $34 per share off from its recent historic
highs of 777 as of last year Additionally, when looking at
the financial statements of Twitter prior to investing in
Twitter, I would want to look at the historical financials or in depth prior to investing okay so meta as of 220 22 is trading at
approximately 206 16 per share off from its recent high recent
historic high of 378 378 As of September 10 2021
What is challenging for meta is that meta appears to be shifting its focus into the metaverse and furthermore okay let's see
here so let's go and talk about the stock price okay so when we're concluding about
this My personal opinion is that meta has a lot of challenges
ahead so I'm just going to talk about them so for meta as many
challenges to face okay one is the Francis Hogan whistleblower the facts to Apple and Google reinforcing user
privacy platforms which may which will make it which has
made face metas advertising models more difficult to which has made metas advertising
models more difficult to enhance or more difficult to maintain
three Mark Zuckerberg has come under increasing scrutiny by
regulators by the way we don't really have to really talk about
Twitter we're talking about meta as commander in chief increasing
scrutiny scrutiny by regulators as he is the soul and he is
weird we're gonna go ahead and get rid of Twitter stock price
because we're just analyzing meta.

Okay. Okay. As a sole
arbiter of acceptable content and Mark Zuckerberg can never be
ousted as CEO of meta as Mark Zuckerberg controls meta with special voting shares
so here's here's where it gets tough. So although I believe
that meta will continue to perform strongly. I
believe the the factors the challenges listed above would indicate to As an investor
that meta may be risky in the long run. And like my opinion
for meta would be this. My personal observations would be
fat meta, that Mark Zuckerberg should potentially step back
into more of a senior level role and allow others to bring their
inputs into the company. And I think that with Francis Hogan,
my think that one more of a more of an advisory role and allow
others to bring in their inputs and then come in, I think what
Francis Haugen really kind of brought in in terms of the, when
you have a mindset of one individual coming, and I talking
about, you know, one to one person really having that kind
of influence or dictating over a company, I just don't really
think it's helpful help really healthy.

Now, one of the things
I want to say is that this conclusion is because I look at
these companies all the time, I am not expecting you to have
something like this, but I'm putting this out there because I
really want to kind of challenge you to really think about what
is what is it that in terms of AI? Again, when you're looking
at these companies, it there's no correct or incorrect
conclusion. Rather, what I'm really looking for are your
thoughts in terms of going through and looking at this. So
again, I want to thank you for joining me here today. I'm sure
you're gonna say Tchaikovsky are absolutely nuts, and I am but I
am I am nuts in a way that I really want you to have the very
best possible education. And hopefully you found that this
paper is a helpful way of getting to that point. So I want
to thank you, and if there are any other videos you would like
me to create or take down please feel free to leave me a comment.
Have a great day and I'll see you in the metaverse Have a good

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