SKIM THE MILK

A Summary of several pages can sometimes be as brief as one sentence’. Does this ring any bell in the context of reading and understanding financial statements?

You may have mastered by this time now the tools of ‘compare & contrast’, ‘ratio analysis, ‘assets & liabilities classification by cash flow’ while going through the various financial statements as part of your effort to “read and understand” them.

You may still have been overwhelmed by the big amount of ‘data’ you have to churn through, in spite of these handy, commonsense tools. I have a solution for this too, “Skim the Milk”.

While Profit & Loss and Cash Flow statements are pretty straightforward and by design, already de-cluttered. It’s the Balance Sheet, which needs treatment with ‘Skimming’.

Balance sheet is the detailed summary of all the items of assets and liabilities of an entity ‘at a point in time’. While on the face of it, already there are far too many items. On top of it, there are various schedules, which add onto further relevant details. This of course makes it lend itself to analysis by investors, buyers and lenders.

Now the question comes, where does one begin ‘Skimming’? One may begin by further summarizing the data contained in the balance sheet into five broad heads:

ASSETS           :       Fixed Assets and Current Assets

LIABILITIES    :       Shareholders’ Funds, Long term Liabilities and Current Liabilities

This way of summarization brings focus; easily lend itself to ‘compare & contrast’ and ‘ratio analysis’.

Just think of it. If one can summarize balance sheet of 100 odd companies in this condensed format, one would have known and understood, both on informative and instinctive basis, the making and growth of the company.

You will agree that this “Skim the Milk” technique does not require a qualifying degree. It’s simple and sumptuous, once done.

Dish it out, Debits & Credits notwithstanding! Ensure your company’s survival and growth. Increase your wealth and wellbeing.

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