How To Invest Effectively! - Investment - Nairaland
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| How To Invest Effectively! by olushowunm(m): 12:12pm On Mar 23, 2013 |
I welcome you to my world, let me introduce myself first, I'm Olu Showunmi-Bancrofts, you can call me (OSB)... I'm what i called "E.F.I.P", an Entrepreneur, Farmer, Investor and Philantropist. I also like to help others in getting financial intelligence, because i believe that is lacking in our society today. Back to my topic, how do you invest effectively? This is a very wide question, because investment means several things to several people. To some investing is buying ans selling shares, which is trading or speculation! To some its buying a landed property, which is good since prices never fall back to zero like stocks! To some investing is doing fixed deposit, which is also good provided you are getting above market average return! To some its forex or other spots or CFD's, which is good if you know your onions well! To some its futures (Commodities,index and energies), which is also good if you know how it works! So how do you invest effectively  Watch out for updates!!! 4 Likes |
| Re: How To Invest Effectively! by euphoria: 2:07pm On Mar 23, 2013 |
Looking forward to some interesting insights. |
| Re: How To Invest Effectively! by olushowunm(m): 10:35am On Mar 24, 2013 |
LESSON 1: To be sucessful investor, you must have a plan, and nobody can draw it out for you except yourself. A plan in this regard keeps you focus and disciplined, in our generation today, we believe in fast everything like fast-foods, instant photos and express shipping. It's good for such services, but not for investment where your hard-earned money is involved! Why do you really need a plan? Well, to safe-guard you from rash and emotional decisions. My investment plan is simple: 1. I only invest when there is significant bargain to value 2. All my investments in certain asset-class must meet my strict criteria set for that class. 3. I only invest for now in the following asset class: Equities, Futures, T-bills, spots and CFD's, and Real estate. 4. My investment in equities is limited to 30% of my total portfolio 5. My spots trading is limited to 20% of my portfolio. 6. T-bills takes 10 % 7. Futures is 20% 8. Real estate is 20% 9. I must achieve 20% return on investment per annum. 3 Likes |
| Re: How To Invest Effectively! by olushowunm(m): 5:45pm On Mar 24, 2013 |
LESSON 1 CONT.: Outlined above is my simple investment plan and i make sure i follow it to the letter. My most important assets are; my high financial IQ, which includes my ability to read and analyse financial statements, Company and management analysis for equities and fixed income investments, my technical and fundamental analysis of markets for my trading accounts. All these are special skills that must be developed by anybody that seriously wants to become an investor. Investing is about developing skills to spot bargains and not just number blips that we see on bloomberg or CNBC, you have to know what you are doing and believe in your ability. If i come here to give you tips, don't listen to me, because i don't rely nor read any of those financial analysts reports, i stick to what i know and don't listen to any noise and this is the best way to invest and not the way people do it these days. I hope i have wetted your apetite a bit? if yes, watch out for Lesson 2! 1 Like |
| Re: How To Invest Effectively! by Onuels(m): 1:20am On Mar 26, 2013 |
@olusho, I eagerly follow your topic. But u talked abt sports trading. Cud u emphasize on it. Thanks. |
| Re: How To Invest Effectively! by manie(m): 7:26am On Mar 26, 2013 |
Onuels: @olusho, I eagerly follow your topic. But u talked abt sports trading. Cud u emphasize on it. Thanks. Please don't go there, invest your money in legitimate and visible ventures that have the ability to satisfy consumer wants. 1 Like |
| Re: How To Invest Effectively! by olushowunm(m): 8:10am On Mar 31, 2013 |
@Onuels, i will made mention of spot trading as i think thats your point and not sport trading/bet as insinuated by others. I will have continue with this lectures series, but the MOD is getting me pissed by closing my other thread! Anyway, i'm going to continue here, but i want him to close everything i ever posted on Nairaland because if he did not re-open my other thread, i believe it's not worth it to post here for people to learn. Thanks. |
| Re: How To Invest Effectively! by olushowunm(m): 8:21am On Mar 31, 2013 |
LESSON 2: HOW TO READ FINANCIAL STATEMENT 1: Most annual reports can be broken down into three sections: the Executive Letter, the business Review, and the Financial Review. The Executive Letter gives a broad overview of the company's business and financial performance. The Business Review summarizes recent developments, trends, and objectives of the company. The Financial Review is where business performance is quantified in monetary values. The Financial Review has two major parts: Discussion and Analysis, and Audited Financial Statements. A third part might include information supplemental to the Financial Statements. In the Discussion and Analysis, management explains changes in operating results from year to year. This explanation is presented mainly in a narrative format, with charts and graphs highlighting the comparisons. The Operating results are numerically captured and presented in the Financial Statements. 1 Like |
| Re: How To Invest Effectively! by olushowunm(m): 8:26am On Mar 31, 2013 |
LESSON 2: HOW TO READ FINANCIAL STATEMENTS (PAGE 2); The principal components of the Financial Statements are the balance sheet; income statement; statement of changes in shareholders' equity; statement of cash flows; and footnotes. The balance sheet portrays the financial strength of the company by showing what the company owns and what it owes on a certain date, maybe today. The balance sheet can be thought of as a snapshot photograph since it reports on financial position as of the end of the year. The income statement, on the other hand, is like a soap opera's since it reports on how the company performed during the year and shows whether operations have resulted in a profit or loss. The statement of changes in shareholders' equity reconciles the activity in the equity section of the balance sheet from year to year. Common changes in equity result from company profits or losses, dividends, or stock issuances. The statement of cash flows reports on the movement of cash by the company for the year. |
| Re: How To Invest Effectively! by olushowunm(m): 8:34am On Mar 31, 2013 |
LESSON 2: HOW TO READ FINANCIAL STATEMENTS (PAGE 3) The footnotes provide more detailed information on the balance sheet and income statement. This lecture will focus on illustrating the basic financial statements and footnotes presented in annual reports in accordance with current practice except that we awaits the IFRS standard to start-off in Nigeria. It will also include examples of financial methods used by investors to better analyze financial statements. In order to provide a framework for illustration, we will invent a company. It will be a public company (one whose shares are freely traded on the open market). The reason for choosing a public company is that it is required to provide the most extensive amount of information in its annual reports in accordance with guidelines issued by the Regulation bodies like SEC. The company will represent a typical corporation with the most commonly used accounting and reporting practices. We'll call our company Nairaland Manufacturing Plc. |
| Re: How To Invest Effectively! by olushowunm(m): 8:41am On Mar 31, 2013 |
LESSON 2 (PAGE 4): A Few Words Before We Begin: Below are four samples of a Balance Sheet, Income Statement, Statement of Changes in Shareholders' Equity & a Statement of Cash Flows. These are the statements we will discuss in the first section. To simplify matters, I did not illustrate the Discussion and Analysis nor did i present examples of the Executive Letter or Business Review. In our sample statements, i've presented two years of financial results on the balance sheet and income statement and one year of activity on the statement of changes in shareholders' equity and statement of cash flows. This was also done for ease of illustration. Were i comply with regulatory requirements, we would have had to report the last 3 years of activity in the Income Statement, Statement of Changes in Shareholders' Equity, and Statement of Cash Flows.. |
| Re: How To Invest Effectively! by olushowunm(m): 8:59am On Mar 31, 2013 |
Nairaland Manufacturing Plc. Balance Sheet December 31,2012 and 2011 (Naira in thousands) Assets. 2012 2011 Current Assets Cash. 20,000 15,000 Marketable securities @ M.V 40,000 32,000 Accounts Receivable : 156,000 145,000 Inventories. 180,000 185,000 Prepaid Expenses & other. current assets. 4,000 3,000 Total current assets 400,000 380,000 Property, plant & equipment Land 30,000 30,000 Buildings. 125,000 118,500 Machinery. 200,000 171,100 Leasehold impts. 15,000 15,000 Furniture, fixtures. 15,000. 12,000 Total property, plant, and equipment 385,000 346,600 Less accumulated depreciation 125,000. 97,000 Net property, plant and equipment 260,000. 249,600 Intagibles(goodwill, Patents) - less amortization. 2,000. 2,000 Total assets. 662,000. 631,600 |
| Re: How To Invest Effectively! by olushowunm(m): 9:18am On Mar 31, 2013 |
Liabilities Current liabilities Accounts payable 60,000 57,000 Notes payable 51,000 61,000 Accrued expenses 30,000 36,000 Income taxes 17,000 15,000 Other liabilities 12,000 12,000 Total current liabilities: 170,000 181,000 Long-term liabilities Deferred income taxes 16,000 9,000 12.5% Debentures payable 130,000 130,000 Other long-term debt 0 6,000 Total libilities 316,000 326,000 Shareholders Equity Preferred staock N5.83 cumulative, N100 par value authorized, issued and outstanding 60,000 shares N6,000 N6,000 Common stock N5.00 par value, authorized 20,000,000 shares, 2012 issued 15,000,000 shares, 2011 14,500,000 shares 75,000 72,500 Additional paid-in capital 20,000 13,500 Retained earnings 249,000 219,600 Treasury stock at cost (2012-1,000; 2011-1,000 shares) 5,000 5,000 Total shareholders' equity 346,000 305,600 Total liabilities and shareholders' equity: N662,000 N631,600 |
| Re: How To Invest Effectively! by olushowunm(m): 9:31am On Mar 31, 2013 |
Nairaland Manufacturing Plc. Consolidated Income Statement December 31,2012 and 2011 (Naira in thousands) 2012 2011 Net sales N765,000 N725,000 Cost of sales 535,000 517,000 Gross margin 230,000 208,000 Operating expenses Depreciation and amortization 28,000 25,000 Selling, general and administrative expenses 96,804 109,500 Operating income 105,196 73,500 Other income (expense) Dividends and interest income 5,250 9,500 Interest expense (16,250) (16,250) Income before income taxes & extraordinary loss 94,196 66,750 Income taxes 41,446 26,250 Income before extraordinary loss 52,750 40,500 Extraordinary item: Loss on early extinguishment of debt (5,000) 0 Net income 47,750 40,500 Common shares outstanding 14,999,000 14,499,000 Earnings per common share before extraordinary loss 3.19 2.77 Earnings per share--extraordinary loss (.33) 0 |
| Re: How To Invest Effectively! by olushowunm(m): 9:34am On Mar 31, 2013 |
Net income (per common share) 3.16 2.77 |
| Re: How To Invest Effectively! by olushowunm(m): 9:52am On Mar 31, 2013 |
Nairaland Manufacturing Plc. Consolidated Statement of Cash Flows December 31,2012 and 2011 (Naira in thousands) Cash flows from operating activities: Net income 47,750 Adjustment to reconcile net income to net cash from operating activities: Depreciation and amortization 28,000 Increase in marketable securities (8,000) Increase in accounts receivable (11,000) Decrease in inventory 5,000 Increase in prepaid expenses and other current assets (1,000) Increase in deferred taxes 7,000 Increase in accounts payable 3,000 Decrease in accrued expenses (6,000) Increase in income taxes payable 2,000 Total Adjustments 19,000 Net Cash Provided by Operating Activities 66,750 Cash Flows from Investing Activities: Purchase of fixed Assets (38,400) Net Cash Used in Investing Activities (38,400) Cash Flows from Financing Activities: Decrease in notes payable (10,000) Decrease in other long-term debt (6,000) |
| Re: How To Invest Effectively! by olushowunm(m): 9:59am On Mar 31, 2013 |
Proceeds from issuance of common stock Payment of dividends (18,350) Net Cash Used in Financing Activities (25,350) Effect of Exchange Rate Changes on Cash 2,000 Increase in Cash 5,000 Cash at beginning of year 15,000 Cash at end of year 20,000 Income tax payments totaled 3,000 in 2012. Interest payments totaled 16,250 in, 2012. **** See accompanying notes to consolidated financial statements***. |
| Re: How To Invest Effectively! by olushowunm(m): 10:06am On Mar 31, 2013 |
The Balance Sheet explained: The balance sheet represents the financial picture as it stood on one particular day, December 31,2012, as though the wheels of the company were momentarily at a standstill. Nairaland's balance sheet not only includes the most recent year, but also the previous year. This lets you compare how the company fared in its most recent years. The balance sheet is divided into two sides: upper side are shown assets; lower side are shown liabilities and shareholders' equity. Both sides are always in balance. Each asset, liability, and component of shareholders' equity reported in the balance sheet represents an "account" having a naira's amount or "balance." In the assets column, we list all the goods and property owned, as well as claims against others yet to be collected. Under liabilities we list all debts due. Under shareholders' equity we list the amount shareholders would split up if Nairaland were liquidated at its balance sheet value. Assume that the corporation goes out of biz.. |
| Re: How To Invest Effectively! by olushowunm(m): 10:12am On Mar 31, 2013 |
on the date of the balance sheet. If that occurs, the illustration which follows shows you what Nairaland Manufacturing shareholders might expect to receive as their portion of the business. Total assets (Less: intangibles) N660,000 Amount required to pay liabilities N316,000 Amount remaining for the shareholders N344,000 Now, I'm going to give you a guided tour of the balance sheet's accounts.i'll. define each item, one by one, and explain how they work. Assets Current Assets In general, current assets include cash and those assets which in the normal course of business will be turned into cash in the reasonably near future, i.e., generally within a year from the date of the balance sheet. Cash This is just what you would expect-bills and coins in the till (petty cash fund) and money on deposit in the bank. |
| Re: How To Invest Effectively! by olushowunm(m): 9:56pm On Mar 31, 2013 |
1 Cash N20,000 Marketable securities: This asset represents investment of excess or idle cash that is not needed immediately. In Nairaland's case it is invested in preferred stock. Because these funds may be needed on short notice, it is essential that the securities be readily marketable and subject to a minimum of price fluctuation. The general practice is to show marketable securities at cost or market, whichever is lower. 2 Marketable securities at cost which approximates mkt.value N40,000 Accounts receivable; Here we find the amount due from customers but not yet collected. When goods due are shipped prior to collection, a receivable is recorded. Customers are usually given 30,60, or 90 days in which to pay. The amount due from customers is N158,375. However, experience have shown that some customers fail to pay their bills, because of financial difficulties or some catastrophic event (a tornado, a hurricane, or a flood) befalling their business.. |
| Re: How To Invest Effectively! by olushowunm(m): 10:01pm On Mar 31, 2013 |
Therefore, in order to show the accounts receivable item at a figure representing expected receipts, the total is after a provision for doubtful accounts. This year that debt reserve was N2,375. 3 Accounts receivable-less allowance for doubtful accounts of N2,375 N156,000 Inventories: The inventory of a manufacturer is composed of three groups. raw materials to be used in the product, partially finished goods in process of manufacture, and finished goods ready for shipment to customers. The generally accepted method of valuation of the inventory is cost or market, whichever is lower. This gives a conservative figure. Where this method is used, the value for balance sheet purposes will be cost, or perhaps less than cost if, as a result of deterioration, obsolescence, decline in prices, or other factors, less than cost can be realized on the inventory. Inventory valuation includes an allocation of production and other expenses, as well as the cost of materials. |
| Re: How To Invest Effectively! by olushowunm(m): 10:02pm On Mar 31, 2013 |
4 Inventories N180,000 |
| Re: How To Invest Effectively! by olushowunm(m): 10:04pm On Mar 31, 2013 |
olushowunm: Nairaland Manufacturing Plc. |
| Re: How To Invest Effectively! by olushowunm(m): 10:04pm On Mar 31, 2013 |
olushowunm: Nairaland Manufacturing Plc. |
| Re: How To Invest Effectively! by olushowunm(m): 10:08pm On Mar 31, 2013 |
Prepaid expenses Prepaid expenses may arise for a situation such as this: During the year, Nairaland prepaid Property, plant and equipment insurance premiums and advertising charges for the next year. Those insurance premiums and advertising services are as yet unused at the balance sheet date, so there exists an unexpended item, which will be used up over the next 12 months. If the advance payments had not been made, the company would have more cash in the bank. So payments made in advance from which the company has not yet received benefits, but for which it will receive benefits next year, are listed among current assets as prepaid expenses. 5 Prepaid expenses and other current assets N4,000 Deferred charges for such items as the "introduction" of a new product to the market, or for moving a plant to a new location, represent a type of asset similar to pre-paid expenses... |
| Re: How To Invest Effectively! by olushowunm(m): 10:13pm On Mar 31, 2013 |
However, deferred charges are not included in current assets because the benefit from such expenditure will be reaped over several years to come. So the expenditure incurred will be gradually written off over the next several years, rather than fully charged off in the year payment is made. Our balance sheet shows no deferred charges because Nairaland has none. If it had, they would normally be included before intangibles on the asset side of the ledger. To summarize, the total current assets item includes primarily: cash,marketable securities, accounts receivable, inventories, and prepaid expenses. 6 Total current assets N400,000. You will observe that these assets are mostly working assets in the sense that they are in a constant cycle of being converted into cash. Inventories, when sold become accounts receivable; receivables, upon collection, become cash; cash is used to pay debts and running expenses. We will discover later in this lectures series how to make current assets tell a story... |
| Re: How To Invest Effectively! by olushowunm(m): 10:18pm On Mar 31, 2013 |
Property, Plant, and Equipment Property, plant and equipment represents those assets not intended for sale that are used over and over again in order to manufacture, display, warehouse, and transport the product. This category includes land, buildings, machinery, equipment, furniture, automobiles, and trucks. The generally accepted and approved method for valuation is cost minus the depreciation accumulated by the date of the balance sheet. Depreciation is discussed in the next note. Property, plant, and equipment Land N30,000 Buildings N125,000 Machinery N200,000 Leasehold Improvements N15,000 Furniture, fixtures, etc N15,000 7 Total property, plant & equipment N385,000 The above part of the balance sheet is not intended to reflect market value at present or replacement cost in the future. While it is recognized that the cost to replace plant and equipment at some future date might be higher, that possible cost is obviously variable.. |
| Re: How To Invest Effectively! by olushowunm(m): 10:24pm On Mar 31, 2013 |
For this reason, up to now, most companies have followed a general rule: acquisition cost less accumulated depreciation based on that cost. Depreciation Depreciation is the practice of allocating the cost of a fixed asset over its useful life. This has been defined for accounting purposes as the decline in useful value of a fixed asset due to wear and tear from use and passage of time. The cost incurred to acquire the property, plant and equipment must be spread over the expected useful life, taking into consideration the factors discussed above. For example: Suppose a delivery truck costs N10M and is expected to last five years. Using a straight-line" method of depreciation, N2M of the truck's cost is allocated to each year's income statement. The balance sheet at the end of one year would show: Truck (cost) N10,000 Less accumulated depreciation N2,000 Net depreciated value N8,000... |
| Re: How To Invest Effectively! by olushowunm(m): 10:30pm On Mar 31, 2013 |
At the end of the second year it would show: Truck (cost) N10,000 Less accumulated depreciation: N4,000 Net depreciated value : N6,000 In our sample balance sheet, a figure is shown for accumulated depreciation. This amount is the total of accumulated depreciation for buildings, machinery, leasehold improvements, and furniture and fixtures. Land is not subject to depreciation, and its listed value remains unchanged from year to year. Less accumulated depreciation N125,000 Thus, net property, plant and equipment is the valuation for balance sheet purposes of the investment in property, plant and equipment. As explained before, it consists of the cost of the various assets in this classification, less the depreciation accumulated to the date of the financial statement. 9 Net property, plant, and equipment N260,000 Depletion is a term used primarily by mining and oil companies or any of the so-called extractive industries e.g Total. |
| Re: How To Invest Effectively! by olushowunm(m): 10:30pm On Mar 31, 2013 |
At the end of the second year it would show: Truck (cost) N10,000 Less accumulated depreciation: N4,000 Net depreciated value : N6,000 In our sample balance sheet, a figure is shown for accumulated depreciation. This amount is the total of accumulated depreciation for buildings, machinery, leasehold improvements, and furniture and fixtures. Land is not subject to depreciation, and its listed value remains unchanged from year to year. Less accumulated depreciation N125,000 Thus, net property, plant and equipment is the valuation for balance sheet purposes of the investment in property, plant and equipment. As explained before, it consists of the cost of the various assets in this classification, less the depreciation accumulated to the date of the financial statement. 9 Net property, plant, and equipment N260,000 Depletion is a term used primarily by mining and oil companies or any of the so-called extractive industries e.g Total. |
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