Good Investment I?

Quote Warren Buffeff: “Investment is most successful when it’s most business-like and vice versa.”

In dealing with business, we need to review the business performance through various financial statements, among others are income statements, balance sheets and cash flow statement. AP is an example of the investment you intend to make. In order to evaluate the feasibility of the investment, let’s examine AP’s financial statements.

First, we go through AP’s income statements after a year of operation. Below are the details:

- Revenue: $ 9,600
- Cost of sales: NA
- Gross profit: $ 9,600
- Interest Expense: ($ 9,720)
- Net profit: ($ 120)



Then, look at the balance sheets:

- Property: $ 270,000
- Current assets: nil
- Current liabilities: nil
- Financed by:-
- Shareholders’ equity: $ 27,000
- Borrowings: $ 243,000


Lastly, we look at the cash flow statements:

- Cash (used in) operation: ($ 480)
- Cash generated from investment: $ 9,600
- Cash (used in) financing: ($ 9,720)
- Net decrease in cash: ($ 600)
- Cash at beginning of year: NA
- Cash at end of year: ($ 600)

We will discuss the feasibility of this investment for the next posting….