Reading financial reports

[Nobert]

A company is taxed on their profits. If they declare a loss their tax burden is significantly decreased... and may be zero. That's why you see stories like below; where a multi-billion dollar company like General Electric paid no taxes at all in 2010.

The law states that a company can only declare a loss 2 out out five years. So imagine a scenario where a company has declared a profit the last three years. They can save a boatload of money simply by declaring a loss this year. Good accountants will structure tax returns over a number of years to maximize write-offs.

This, in turn, affects the share price, as declared quarterly earnings will be down this year. It has little to do with actual revenue, PnL, unit sales, etc.. it's all creative accounting designed to minimize tax burden.

Any kind of fundamental analysis ABSOLUTELY MUST include an investigation into a company's tax structure. It's on the short list of drivers for company valuation.

https://abcnews.go.com/Politics/general-electric-paid-federal-taxes-2010/story?id=13224558

How do you think, in the recent decade, does the trend of such practice went up or down ?
How many, actually have been caught by doing so and is the fines big enough ?
Or, this is just a smart hole in the tax system that can be exploited (?)

It brings, the already wriggled game into a new level.
(for a small retailer)

In such case, as you mentioned, revenue and sales plays much bigger role.
(probably, can't twist those numbers that easily, unless one represents NKLA or smthn)

 

[speedo]

If you have no academic background in accounting, there are free online courses you can audit. Check out edX.org. You want a course on financial accounting rather than managerial accounting.

 

[kmiklas]

How do you think, in the recent decade, does the trend of such practice went up or down ?
How many, actually have been caught by doing so and is the fines big enough ?
Or, this is just a smart hole in the tax system that can be exploited (?)

It brings, the already wriggled game into a new level.
(for a small retailer)

In such case, as you mentioned, revenue and sales plays much bigger role.
(probably, can't twist those numbers that easily, unless one represents NKLA or smthn)

- This practice is done by every company out there.
- Rarely if ever do they get caught. They're really not doing anything "wrong," just maximizing every tax writeoff and loophole. They have the $$ for the best accountants.
- It's pretty easy to manipulate tax burden; e.g.: Hire/fire contractors, lease/relinquish office space, buy (or don't buy) new equipment... simply structure spending in a way that minimizes tax burden.

With huge companies, often the managers actually worked for the IRS, and know people there. The biggest companies have the power to buy the politicians and actually have tax laws written in their favor.

 

[Dollardogs]

I became interested in reading financial reports for companies.
I would like to deeply understand how they work (Balance sheets, income statement, cash flow)

I would like also to understand what will happen to balance sheet of a company when it acquire another company and how it will be affect.

I went through youtube but all videos are just giving term definitions and rough information. Nothing concrete.

I am asking if there is a good resource (video , book, .. ) that explain the financial report in more details ?

I would expect something like that shall exist in finance courses.

I found "Fundamental Analysis for Dummies" and "Buffetology" both pretty helpful and clear.