Financial Statement Analysis- Part 2- February 2022 – Creating Common Sized Financial Statements

Unknown: Hello everybody and
welcome to my financial statement analysis part two. My
disclaimer and copyright notice the information opinions in this
presentation are those of the author only, and not the
author's employers or 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 what
we're going to be doing today is we selected our company, we have
been approved for our comparable company. Or if you're doing this
on your own, you just made one up.

But now we're we're going to
do through go through and do is we're going to be doing common
size financial statements. This is really the for the balance
sheet and the income statements only. So why do we use common
sized financial statements and this is going to be giving us an
ability to compare two companies that are in somewhat of similar
industries. If a company is in, you know, if I if I take a look
at Home Depot and Lowe's, what I will notice is because there
they are in the same industry, they should have roughly the
same percentage of total inventory receivables and the
like. When we do a common sized financial statement, we're going
to be showing balance sheets are shown as a percentage of total
assets. Income statements are shown as a percentage of total
revenue. When you are taking my class a very common mistake to
see is that a student will use a 10 Q and not use the 10k. You
want to use the 10k which is the annual report. Also to the one
other thing I'm going to say is that Microsoft Excel and I'm not
plugging the amazing instructors we have at Irvine Valley College
Carolina consoIe Rupa mat Dr.

Rupert Mathur, they are amazing
right? And I need to take their class because my Excel is bad.
What's always entertaining to me is the one the students who have
taken their class Professor mouth or professor because
always class, they're always saying oh my god Bennett, You're
terrible. This is really painful watching you use Google Sheets.
But the ones who have never seen me do it say, Oh, wow, then it
you're great. Now I'm terrible. You have to make sure that
before you're embarking on your career, you take a Microsoft
Excel class, you know how to use Excel. I've been told by
recruiters before that this is by far the number one most
important part before you head into employment. So make sure
that you have taken Excel classes before you start working
full time. Okay, now what I'm going to do, though, before I go
through and do this is I'm going to go ahead and I'm going to
create a Google sheet.

So I'm going to call this individual
paper. Bennet Tchaikovsky, which is me, and man, I should
probably capitalize my first name that look, Bennet
Tchaikovsky, B, Fe, FB and Twitter. Okay, so my first tab,
we can go over here. We can say companies chosen. We'll say
primary company is meta platforms, Inc. This is also on
NASDAQ. Their ticker symbol is Facebook. For right now. Over
here, the comparable company is going to be Twitter, Inc. This is gonna be NASDAQ. I
think it's TW T AR But we'll we'll find out pretty quickly.
What I'm going to do over here is I need to make four sheets.
I'm going to go over here.

Balance Sheet of Facebook. Balance Sheet of
Twitter Income Statement Facebook Income
Statement of Twitter. Okay, so now what I'm going to go into,
because I'm gonna go over here to sec.gov When I go to sec.gov,
I'm going to click on Company filings. Over here under Company
in person lookup. There's a couple different things I can
do. If I go Twitter stock price, if I do a Google search for
that, their ticker symbol is TW T TR I was correct. So right
over here, there basically it's TW TR wo Okay, so if I look over here for TW
TR. Wow, there have been a little bit of a rocky ride.
Okay. So we've got over here TW TR. Okay, so that is sorry about
that everybody, I just find when I see the stock price like that
I'm like, wow.

Okay, so right over here, we're going to go to
Twitter. So we'll start over here with Twitter, then TW T R.
So Twitter Inc, we're going to go ahead and click on that. Now,
if I have over here on if I have the investor toolkit on what I
will notice other on the New York Stock Exchange, let's change that up. So when I come over here, and if
I have the investor toolkit on this will enable me to go
through and view their financial reports pretty much in real
time. So if I come over here, and I click on this, this will
take me to Twitter's 10k.

Now, what I could do is I could come
over here and say financial statements and supplementary
data. And then I could try to copy all this information here.
And if I try to paste this, do a copy, paste it. And boy, does that look
terrible. Okay, so that's not going to be the way I'm going to
want to do it. Because if I just copy that information, that's
not going to look good. But fortunately for us, we have
another place where we can go through and look. Now, if I come
over here, and I look at filing, okay, what's gonna happen over
here is this is the filing that Twitter made with the SEC, just
this past within the last few days, if I go over here, and if
I click on interactive data, when I click on interactive
data, where I can go to is I can look over here, and I can look
at view Excel document. When I click on View Excel document,
this is going to go ahead and open up a new Excel spreadsheet,
which is right over here.

Now, when you look at this, now, what
you could do is I could download this, and I could upload it on
into Google Sheets, Google Sheets gives me that ability to
do it, if I'm in Google Sheets. And I'm just going to show you
how to do this really quickly. If I am in over here in Google
Sheets, and if I go here to open up the file picker, I can come
over here and basically click upload. And I can upload that
and it will basically take that Excel file and bring it into
Google Sheets all current centrally create a new file, but
I don't necessarily want to do that. So but instead, what I'm
going to go ahead and do is I'm going to go back over here to my
Microsoft Excel document. And I'm going to look for two
things. I'm going to look over here. Now there's a lot of tabs.
Okay, there's a lot of tabs, there's way too many.

The first
thing I'm going to look for is I'm going to look for the
consolidated balance sheets. When I come over here, for
Twitter. What I'm going to do is I'm going to take this
information from the Excel sheet, I'm going to copy and
paste it. And now I'm going to come over here to my come back
over here to my balance sheet for Twitter. And I'm going to
paste it over here and look lo and behold, for Twitter, it
looks actually pretty good.

And term look a lot better than what
I tried to do earlier. Okay, so over here, notice that my total
assets of 14 billion are equal to my total liabilities plus
shareholders equity. So the next thing I'm going to go ahead and
do for Twitter, because I'm going to go back over to that.
I'm going to go back over to that Excel sheet. And what I'm
going to do now is to look for the income statement. Now what
you have to be careful about is when it comes to looking at
these different sheets over here on what's being filed with the
SEC is you'll sometimes say well, Tchaikovsky told us to do
an income statement. And all I can find over here is this
consolidated statement of operations.

This is one in the
same thing, right? So this over here is the consolidated
statement of operations for Twitter. If you look over here,
you'll find something called the consolidated statements of
comprehensive income. We don't want that we want the country
Solid statement of operations or income statement. So we're going
to go ahead and copy this over. And now I'm going to go ahead
and put this over here to my individual paper. Okay, so right
over here, I now have my my income statement. Now one of the
things I would suggest for you to do is to make sure that what
I just copied over is in fact, correct.

When you go on to the
10k, you will generally find the financial statements over here
in item eight. When I look down at item eight, and I look here,
okay, the assets are 1459 516, as of December 31, on my balance
sheet for Twitter, I have the same dollar amounts. So I did
that correctly. Instead of my income statement, they call it a
consolidated statement of operations, same thing, my
revenue for the year ended December 31 2021 was 5 billion.
These amounts are in 1000s. So right over here, this is roughly
about 5 billion.

When I come over here to my income statement
of Twitter, I'm seeing it that was the number that I went over
here and pulled out. So as of this point, right over
here, I'm good to go in terms of pulling the financial
information for Twitter. What I'm now going to do is I'm now
going to do the same thing for Facebook or for meta platforms.
I'll get ventually get it right meta platforms. And we got to
get our spot in the metaverse. Okay. So over here, I do not
want to file the I don't want to look at the tang cue, I want to
look at the 10k. More importantly, I want to look at
the filing document because that's where I'm gonna file the
x where I will find the Excel file.

So if I come over here to
my interactive data, and I look at this interactive data, I'm
going to go to View Excel document. And I'm going to go
ahead and view this Excel document. I'm going to go ahead
and open that up. And I'm going to go ahead and share that with
you. So here we go. This is going to
be for for meta platforms or for Facebook. So let's take a look
here.

Okay, audit information just tells us who the auditors
are. First thing we're going to do over here is we're going to
go ahead and see we've got the balance sheet over here for for
Facebook or something for metal platforms. So I'm gonna go ahead
and copy this over here. Okay, I'm now going to go over here to just give me a moment, man, uncover your to my balance
sheet for Facebook, I'm going to go ahead and copy this over. So
here is my balance sheet, which just got way too big. Do that
real fast. Okay, there we go. Okay, so I've got my Facebook,
this is my balance sheet. And as I notice, over here, the total
assets of Facebook are about 165 billion.

And if I just go ahead
and look at this, going back to over here, if I'm looking at
that this in terms of the financial statements, just to
make sure that I've actually copied over the right
information. When I come down, and I look at this, and their
total assets are 165 billion 160 5 billion for total assets,
what I now need to do is I need to pull up the income statement
for Facebook. So I'm going to come over here.

And when I look
at the income statement for Facebook, again, they're going
to call it something else. Right over here. They're going to go
through and call it the consolidated statements of
income or operations. So this is basically the income statements.
I'm going to go ahead and copy this. And what I'm going to do
is I'm going to come over here to my income statement for
Facebook. I'm going to go ahead and paste this right over here.
Okay. So again, have I done this correctly, let's just pick a
number cost of revenue for the 12 months ended December
31 2021. If I come over here and look up the cost of revenue for
the year ended December 31 2021 is 22,649,000,000. Okay, so
right away Here, that's where you get that oops, that's where
you get that number.

So we have looks like we have done this
correctly, at least for the moment. Okay, so we've copied
over the financial statements over here, which is great. Now,
the next thing we're going to do is that when it comes to doing,
we'll go ahead and do the balance sheets. First, when I do
the balance sheets, what I'm going to do is I'm going to show
everything over here as a percentage of total assets. So
what I'm going to do is I'm going to take this 16 601. And
I'm going to divide this by total assets of 165 997 billion.
And what I'm going to do is I'm going to go ahead, and I'm going
to basically put little dollar signs in front of this. And
again, Professor consoliads, probably laughing at me right
now, which you should absolutely be.

But I'm just going to go
ahead and divide this, if I put the little dollar signs in front
of it, what that means it's going to divide every number
here by this value. So this dollar kind of this these dollar
signs kind of cemented. Okay. And again, I'm just, I'm making
a total budget of myself, but that's okay, I can do that. So
right, every again, I'm telling you, you need to take Excel
classes. Okay. So I've now just made the balance sheet for the
year ended December assuming as of December 31, or at December
31 2021.

Into a common sized percentage, over here, I'm going
to divide everything by total assets for the prior year. Use
that little dollar sign. This is why Excel is so important. Okay,
so right over here, and why some of you who have taken Excel
classes are laughing at me, and I'm glad I'm providing you that
entertainment. So over here, that's what I've gone through.
And I've done. Let's do the same thing with our Twitter with our
tweeting. Notice over here everything is here is in 1000s.
Okay, everything here is in millions of dollars. So when we
look at the dollar amounts, we just want to kind of keep that
in the back of our mind.

So over here, for Twitter, we're going
to do the same thing, divide everything by total assets.
Okay, and once we go through and divide everything by total
assets, we should see the 100% down there, and we should also
see the 100% at total liabilities and stockholders
equity, we're going to do the same thing over here, I'm going
to divide everything by total assets. And make that value
solidified, turn this into a percentage. And we're now in the process of
making this common sized. Okay. So once we've gone through and
done that, for the balance sheets, it's now off to the
income statements. But before I get to the income statements, at
least for my class, what I want you to go ahead and do is let's
get rid of the earnings per share amounts, those are not
necessarily going to be things that we're going to be looking
at, for purposes of common sized financial statements.

Because
these are showing it in a per share, not in 1000s of dollars.
Also, that doesn't really apply to us at this point in time, we
can always go back and get that information later. So over here,
what I'm going to go ahead and do is I'm going to do all three
years, but I don't have to. So for this one, I'm going to
divide revenue by total revenue.

And when I do so, I'm going to
make that second value solidified by putting a little
dollars on it. So now my total revenue should be 100%. If you
have different components of revenue, say if you have one
that is like you know, if this was like 17 billion and then 100
billion, then what I would have you do is say okay, we'll show
these as a show everything is total revenue, but you should
have at least one number that is showing total revenue.

Okay, so,
gone through it. I've done that over here. And then I'm dividing
this by the same number. And I want to make sure that this is
also I have my little dollar signs in front of here. And over
here, I'm taking this and I'm dividing it by CI five Okay, so
we've just made these common size. If you're taking my class,
you only have to do two years. I just decided to do this for fun
because it was pretty easy to do. Now let's go ahead and take
a look over here at our at our tweeting. So right over here,
we're going to divide everything by total revenue okay. And we're going to do the same
thing over here this again has to be shown at 100%. And then over here, we're gonna have in 2019. We're
also going to be showing us also at 100%.

Okay, so as we go through and look at
Twitter, as I go through and look at Twitter, we can kind of
see, again, this is showing in common size. I'm not a pining on
anything right now. But again, for the income statement, we're
dividing everything by total revenue. For the balance sheet,
we're dividing everything by total assets. Once you've
completed this, you will have completed this part of the
assignment. But this is why going through and doing this can
be so extremely important. When we look at the when we look at
Facebook, or when we are going through and looking at Twitter,
this can kind of give us an idea in terms of well, are these
companies similar? Well, as I look at this over here,
property, plant and equipment, this is about 34 billion for
Facebook, about 14 or about 14% of total assets for Twitter.
Goodwill is about 9% For Twitter, for Facebook's about
11.57%. And as we go through and look at the ratios, I'll kind of
give you some more insights as we look at these two different
companies.

But at least we'll give a starting point we start
going through and doing our ratio analysis. So again, if
you're taking my class, and if I'm having you do this as part
of your project, what are you going to have to do for this?
Well, your first step is going to create a Google Sheet. Please
share that Google Sheet with me. If you're in my class, I've told
you what email address to go through in the US.

Once you've
chosen your company, what you're going to do next is you're going
to go ahead and then look at the year and basically, you know,
copy over the balance sheets income statements for your
company, as well as the comparable company, make sure
that you're using the 10k and not the 10 Q. That's happened
more than once when I've been going through and grading dates.
So just make sure that you've done that. And that kind of
takes us back over to here. And so we've gone through we've done
this, and then we have now we have finished this part of the
project. So we've made the common size financial
statements, I'll be doing a video soon, that'll be going
through and showing us how to go through and to analyze the
company. So I want to thank you for watching this video here
today. Right? A lot of this is going to be just be applicable
to the students that are in my class. However, if you want to
kind of go through and do this on your own, and if you want to
share with me, your Google Sheet and your you're cool with doing
it in the comments, please feel free to do so.

And I'm more than
happy to give you feedback on it. But again, I hope that this
can actually help you in terms of going through and doing this
very important step of creating common sized financial
statements. Thank you so much, and I look forward to seeing you
on the next video..

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