One of the most important things to know before starting investing is 'accounting'. When making investment decisions, it is very important to accurately understand a company's financial status.

Basic Understanding of Investment and Accounting

It is very important to understand a company's financial status and performance before making an investment decision. In this case, accounting information is a useful tool for investors to evaluate the company's value and develop an investment strategy.

Accounting is a system for measuring and recording a company's economic activities, and it produces reports called financial statements as a result.

Financial statements provide information about a company's assets, liabilities, equity, revenues, and expenses, allowing investors to analyze the company's financial status and performance.

For example, investors can evaluate a company's growth potential, profitability, and stability through indicators such as revenue, operating income, and net income. They can also use financial ratios such as debt ratio and current ratio to predict the company's financial risk. In addition, they can analyze a company's financing and operating situation through its cash flow statement.

Therefore, the ability to understand and analyze the accounting information of a company you want to invest in plays a crucial role in investment success. Therefore, acquiring basic accounting knowledge is a necessary preparation before investing.

Learning How to Read Financial Statements

The ability to interpret accounting information is essential in investment. To acquire this ability, you must learn how to read financial statements, which are the most basic materials.

Financial statements are tables that show a company's financial status and performance, summarizing a company's economic activities over a period of time. The main financial statements are the balance sheet, income statement, cash flow statement, and statement of changes in equity.

• Balance Sheet: Shows the financial status of a company at a specific point in time. It consists of asset, liability, and equity items and can be used to evaluate a company's net asset size and financial stability.
• Income Statement: Shows the performance of a company over a certain period of time. It consists of items such as revenue, operating expenses, operating income, and net income and can be used to evaluate a company's profitability, growth potential, and margins.
• Cash Flow Statement: Shows the cash flow of a company over a certain period of time. It consists of cash flows from operating activities, investing activities, and financing activities and can be used to understand a company's financing and operating situation.
• Statement of Changes in Equity: Shows the changes in a company's equity over a certain period of time. It consists of items such as capital stock, capital surplus, and retained earnings and can be used to understand a company's equity size and changes in shareholder equity.

By being able to skillfully read these financial statements, you can gain a more accurate understanding of a company's financial status and performance, which will greatly help you in making investment decisions.

Understanding the Concepts of Assets and Liabilities

What do assets and liabilities mean in accounting?

• Assets: Generally refer to resources that are expected to generate economic benefits in the future. In other words, it is a company's tangible/intangible resources that have the potential to generate future revenues or cash. Typical assets include cash, inventory, buildings, and machinery.
• Liabilities: Refers to present obligations arising from past events or transactions to provide assets or services to another entity in the future. In other words, it means a company's obligations to repay or settle debts in the future. Typical liabilities include borrowings, accounts payable, and advances.

Therefore, the general rule is that more assets are better and fewer liabilities are better. However, this may vary depending on the situation of each company, so the details should be analyzed based on the company's financial statements.