YouSaid · the spoken record

Brian Feroldi

lines on the record: 45
first: 2025-09-12
most recent: 2025-09-12
sittings or episodes: 1
sources: podcast

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“Yeah, so financial statements are a really hard thing to express over a podcast. So, if anybody follows me on social media, I create a lot of visuals that kind of explain the nuance of accounting. So if your listeners go to financial statements.school, financial statements.school. There I have an ebook that has 10 of my most popular accounting infographics. And you can download them and then they'll make a lot of the concepts we talked about on today's episode make a whole lot more sense.”
2025-09-12 · We Study Billionaires · TIP752: Financial Statements Explained Simply w/ Brian Feroldi · IDENTIFIED FROM THE TRANSCRIPT
“Personally, I put zero emphasis on DCF models. I don't use DCF models. I know many valuation gurus say that they're the only way to value business. I don't agree with that at all. I think the most useful DCF model is called the reverse DCF model, where you solve for the company's implied growth rate by using the current stock price. That makes a lot of sense to me because you're not making estimates about what the company is going to do. You're seeing what does the market estimate that this company is going to do? And do I think the company can outperform or underperform that? Valuation is one of the most tricky things to do, but I think the simpler you can keep it with valuation, the better you would do as an investor. So when I'm valuing companies, I'm looking at typically reverse this kind of cash flow analysis or simple multiples to determine valuation. I think while that is a very broad stroke, I think that's all you need to do well as an investor.”
2025-09-12 · We Study Billionaires · TIP752: Financial Statements Explained Simply w/ Brian Feroldi · IDENTIFIED FROM THE TRANSCRIPT
“Returns for their investors. This is one of the most important things that everybody listening needs to know what kind of investor are you? Where are on the risk reward spectrum do you lie? Are you going after 100 bagger stocks? If so, you need to really emphasize the story of”
2025-09-12 · We Study Billionaires · TIP752: Financial Statements Explained Simply w/ Brian Feroldi · IDENTIFIED FROM THE TRANSCRIPT
“Investing is all about marrying the left side of your brain with the right side of your brain, and I've learned that good investing is part art and part science. And you need both working in tandem with each other in order to do well. You need to have the financial knowledge to be able to analyze a company's financial statements and ask what's happening with revenue, what's happening with margins. Can the company's balance sheet allow it to survive or will it have to raise capital and dilute investors into oblivion? That's a very important skill that you need to know and to look at. Equally important is to be able to see the company where it is today and have the vision in your mind to say what can happen if this company does what it says it can do or is the future of this company even brighter than the most bullish analyst that's covering this stock today beliefs. It's oftentimes those companies, the one that's outperformed even the most wildly optimistic expectations that are out there that truly go on to deliver life change.”
2025-09-12 · We Study Billionaires · TIP752: Financial Statements Explained Simply w/ Brian Feroldi · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, if you look at my checklist and compare it to his, I have more components on my checklist, but I am more of a quality investor at this time. I am okay with giving up the upside potential of a business. I tend to invest at later stages than he does because I want to see more that the thesis has been proven out. One thing that I like about his style is despite picking stock publicly for like 20 plus years, he is perfectly okay with striking out on an investment, going up and being the champion for a company like Peloton early on and saying, yes, I like this company that stock went on fall like 70 plus percent and he's willing to shake it off, step up to the plate, and still pick another stock that he thinks has upside potential. And what he showed me is that it is perfectly okay to lose and it's perfectly okay to have a portfolio filled with losers. You just need to get one Amazon or one NVIDIA or one apple into your portfolio.”
2025-09-12 · We Study Billionaires · TIP752: Financial Statements Explained Simply w/ Brian Feroldi · IDENTIFIED FROM THE TRANSCRIPT
“When I saw him recommending Amazon and Netflix early on in their growth phase, I thought he was nuts. I just thought he was absolutely backwards and he was violating so many of the sound investing principles. But when I look back at my biggest winners of all time, the things that have the biggest network impact on my personal net worth, they are almost exclusively companies that David Gardner picked out. Companies like Netflix, Amazon, Intuitive, a surgical, Axon. These are companies that I never would have put into my portfolio if he hadn't recommended them and convinced me to. And in many cases, I was holding my nose about the valuation and buying and looking back. They were some of the best purchases I ever made. So he's had a tremendous impact on my financial life.”
2025-09-12 · We Study Billionaires · TIP752: Financial Statements Explained Simply w/ Brian Feroldi · IDENTIFIED FROM THE TRANSCRIPT
“David is a tremendous human being on so many fronts. And one thing that I really like about studying David's investing style is it's so backwards and so differs so greatly from what you hear from the investing greats like Warren Buffett and Charlie Munger and Seth Klarman who emphasize valuation first in everything that they do. David is I view as almost a venture capitalist investor who just so happens to fish in public markets and he has his six signs of a rule breaker have been instrumental in helping me as an investor. In particular, the thing that he has changed my mind about the boast is valuation and how to think about companies that are valued. I am a natural value investor. When I first started investing, I looked for big dividend yields and low PE ratios. And those were the stocks that I wanted to own. So when I heard him say things like, it's okay to pay 100 plus PE ratios for business.”
2025-09-12 · We Study Billionaires · TIP752: Financial Statements Explained Simply w/ Brian Feroldi · IDENTIFIED FROM THE TRANSCRIPT
“A combination of the SEC and the auditors of the business. So, companies that are publicly traded do have to get an outside auditing firm to go in and confirm that the numbers are correct. This is where the big four auditors come from. And it's one reason why if an investor does not see one of the big four auditors on the company's financial statements, they oftentimes will have big questions in the place and saying, why are you bothering with this thousands auditor? We don't trust them. We do trust the big fours in the US. But typically it's a combination of the management team, the auditors, the board of directors, and the regulators that identify whether a company has financial problems or not.”
2025-09-12 · We Study Billionaires · TIP752: Financial Statements Explained Simply w/ Brian Feroldi · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, there's lots of them that happen. They don't always happen to big name companies, but the one that comes to mind immediately was Luck and Coffee, the Chinese high-growth coffee company that in a matter of like three years or something like that had as many locations as Starbucks did and it's like 50 year history as a company. So when I saw that, I was kind of scratching my head like, hmm, that's interesting to see a company that in just a couple of years has matched Starbucks distribution scale. And after being public for a couple of months, they did have to come out and say that we are restating our financial positions or we found some accounting irregularities. When that happened, the stock dropped like 60% or something like that. And I think peaked the trough, the stock went down like 90-ish percent. I believe in the case of luck and coffee, the company has since cleaned up its financial act and is back to being in the good graces of Wall Street. I think the stock has appreciated meaningfully from when it declined. But for me, the investor, I still would have zero faith in the accuracy of Luck and”
2025-09-12 · We Study Billionaires · TIP752: Financial Statements Explained Simply w/ Brian Feroldi · IDENTIFIED FROM THE TRANSCRIPT
“As dead to me forever. There are thousands of companies out there that do not have to restate their financial statements. I don't think investors should bother at all with companies that accounting is a problem.”
2025-09-12 · We Study Billionaires · TIP752: Financial Statements Explained Simply w/ Brian Feroldi · IDENTIFIED FROM THE TRANSCRIPT
“When a company says has to issue a press release saying, We have some accounting irregularities, what they're telling you in plain English is our financial statements that we have issued in the past are not accurate. They are wrong and they could be wrong for a bunch of reasons and they could be wrong in one direction and the other. As a general statement, when a company does that, that means that they overstated their previous revenue or their profits and the orders of their companies found significant problems with the way the company reports financial statements. To me, that is the only true red flag that exists. When I'm making an investment, an inherent promise of that investment is that the numbers that I'm using to make a decision about the company and the valuation are accurate. If all of a sudden I have to question the validity of the numbers that I use to make that decision, I just immediately sell that stock and write that company off.”
2025-09-12 · We Study Billionaires · TIP752: Financial Statements Explained Simply w/ Brian Feroldi · IDENTIFIED FROM THE TRANSCRIPT
“Actually, generating cash from operations. And there's a couple of big reasons why that could happen. They could be related to stock-based compensation expenses. They could be to big changes in working capital. They could be to just huge capital expenditures to get the business off the ground. So that's not necessarily a red flag, but it definitely is worth a deeper dive as an investor. Another thing that I look at is stock-based compensation. I compare how much stock-based compensation is being issued and compare that to a company's net income. As a general broad statement, I like it when less than 10% of a company's net income is issued as stock-based compensation. That's not always possible with high growth companies that are in the tech sector. But if a company is issuing stock-based compensation, I want to make sure it's a relatively small figure.”
2025-09-12 · We Study Billionaires · TIP752: Financial Statements Explained Simply w/ Brian Feroldi · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, the cash flow statement is my favorite statement to analyze because it shows you whether or not a company is producing or consuming cash. So one of the first things that I look at on the cash flow statement is a company's net income. And I compare that directly to a company's free cash flow. Now, free cash flow is not a number that's reported on most cash flow statements, but it's easy to calculate. You take operating cash flow and you subtract out capital expenditures. These numbers are right next to each other on the cash flow statement. What you want to do as an investor is you compare net income to a company's free cash flow. In the best case scenario, a company is producing more free cash flow than it is net income. That would be a positive thing. And the downside, or the worst case scenario, is a company is reporting lots of net income, but it's free cash flow is a negative number, which means that the company is quote unquote profitable on paper, but the company is not”
2025-09-12 · We Study Billionaires · TIP752: Financial Statements Explained Simply w/ Brian Feroldi · IDENTIFIED FROM THE TRANSCRIPT
“That made me feel good as an investor because I've certainly bought lots of bad stocks that have cost me money, but I've never bought a company that cost $13 billion. So management teams make plenty of mistakes too.”
2025-09-12 · We Study Billionaires · TIP752: Financial Statements Explained Simply w/ Brian Feroldi · IDENTIFIED FROM THE TRANSCRIPT
“That it has, or the company might have trouble selling inventory that has and converting it into cash. So if a company has too much working capital or too much accounts receivable or inventory and that number dwarfs its cash balance, to me that's another red flag.”
2025-09-12 · We Study Billionaires · TIP752: Financial Statements Explained Simply w/ Brian Feroldi · IDENTIFIED FROM THE TRANSCRIPT
“Spent on the acquired company's assets in order to make the transaction happen now goodwill by itself is not necessarily a bad thing. There's no liquidity to the asset. You can't turn goodwill back into cash unless you sell the company that you acquired. So I like to make sure that a company's goodwill is less than 10% of the company's total assets. Company can get into trouble if goodwill becomes the company's largest asset. So if I see goodwill over 50% or even 60%, that's when I raise. That to me is a red flag. And the final thing that I look at are some current assets that are called accounts receivable and inventory. These are assets that the company has that will be converted into cash in the future. But you don't want too much of a company's liquidity to be tied up in accounts receivable or inventory because the company might have trouble collecting on the accounts received.”
2025-09-12 · We Study Billionaires · TIP752: Financial Statements Explained Simply w/ Brian Feroldi · IDENTIFIED FROM THE TRANSCRIPT
“Thing I look at when I'm analyzing a balance sheet is the company's cash versus the company's debt. Cash is king in a business. There's only one true sin, and that is running out of cash. So I like to compare how much cash or marketable securities, which is essentially the same thing as cash a company has, and I compare that to its debt load, both short-term debt and long-term debt. Best case scenario is a company has millions or billions of dollars in cash and zero debt, although that's pretty darn rare. So I at least like to check out the relationship between a company's cash balance and debt balance. And as a general statement, it's okay that a company has debt, but I also want to see plenty of cash to be able to finance and support that debt into the future. So that's the first thing that I checked. Another number that I look for on the balance sheet is something called goodwill. Goodwill is the premium that companies have paid in the past to make acquisitions. And it shows how much management team's over.”
2025-09-12 · We Study Billionaires · TIP752: Financial Statements Explained Simply w/ Brian Feroldi · IDENTIFIED FROM THE TRANSCRIPT
“Shareholders through the issuing of too much stock based compensation. So those are three big yell fugs that I look for. A growth rate, gross margin, and a dilution rate.”
2025-09-12 · We Study Billionaires · TIP752: Financial Statements Explained Simply w/ Brian Feroldi · IDENTIFIED FROM THE TRANSCRIPT
“Another number that I track closely on the income statement is something called gross margin. Gross margin is a company's gross profit divided by its revenue, and it tells you how profitable a product or service is on a unit basis. When the company's gross margin is declining over time, that to me is a big yellow flag that needs to be investigated because it either means the company is forced to discount its product to consumers in order to drive a nice sales or its suppliers are increasing prices on the supplies and the company can't successfully pass those along to consumers, both of which are big yellow flags to me. The final one that I will look at is a company's shares outstanding or how many shares of stock exist. If this number is rapidly increasing over time, more than 3% per year, that to me is a yellow flag because it means the company doesn't respect their equity and is likely diluting.”
2025-09-12 · We Study Billionaires · TIP752: Financial Statements Explained Simply w/ Brian Feroldi · IDENTIFIED FROM THE TRANSCRIPT
“There's a couple of them. I define these more as yellow flags, to be perfectly honest. When I think the word red flag, I think that means stop, do not go any further, do not invest. So I call the flags that we're about to go over yellow flags because when I see them tripped, it just to me means investigate further. You need more information about this. So in the income statement in particular, I like to look at the revenue growth rate and I judge the revenue growth rate from year to year. And if you see a sudden change in a company's revenue growth rate, that is a signal to Wall Street that the thesis you might be running out. And oftentimes that can trigger a severe decline in the company's stock. So revenue growth rate from year to year is something that I do track. And if a company has a history of growing its revenue 30% per year, and then suddenly it comes out with a report where revenue is growing 10% per year, that is a significant change in the company's revenue growth.”
2025-09-12 · We Study Billionaires · TIP752: Financial Statements Explained Simply w/ Brian Feroldi · IDENTIFIED FROM THE TRANSCRIPT
“Because 10 and 20 years ago, there was hidden value in the company from future optionality. I know that's something that David Gardner, when he's investing, looks for very closely. He asks, can this company launch new products and new services that open up new revenue opportunities? And if the answer is yes, the company might just be undervalued.”
2025-09-12 · We Study Billionaires · TIP752: Financial Statements Explained Simply w/ Brian Feroldi · IDENTIFIED FROM THE TRANSCRIPT
“And new services that opened up needle moving revenue. When I look back at some of the best investments that I've ever made, many of them, the reason for the upside that I have achieved is because of optionality. As an example, Axon, which is formerly called Taser, they made 100% of their revenue from Tasers that police use, the police stun guns. If you look at the company today, that is still a major revenue driver for the company, but it also has Axon body cameras as well as a software solution that it developed internally that ties all of its hardware components together. So if you are buying Axon stock 10 or 20 years ago, you were buying future optionality and these future products that you could not see at the time. And that is one reason why companies like Amazon, like companies like Apple, like companies like Mercado Libre, have been such extreme outperformers over the last 10 and 20 years.”
2025-09-12 · We Study Billionaires · TIP752: Financial Statements Explained Simply w/ Brian Feroldi · IDENTIFIED FROM THE TRANSCRIPT
“Totally. And this is one of the most difficult things when it comes to analyzing a business. So let me give you my definition of optionality. I define optionality as the company's ability to launch new products and new services to its customers that generate needle moving revenue and profits in the future. The best classic example that everyone can think of is Amazon. When Amazon first was a company, it sold books. That was the business. It was selling books. What does Amazon sell today? Everything like everything that you can possibly think of. So Amazon, by starting in books, was developing a customer list and getting the operations in place to deliver books, but then it added on CDs and movies and electronics. And now I think you can go as far as buying kayaks delivered straight to your home directly on Amazon. So Amazon is a tremendous example of a company that was able to launch new products.”
2025-09-12 · We Study Billionaires · TIP752: Financial Statements Explained Simply w/ Brian Feroldi · IDENTIFIED FROM THE TRANSCRIPT
“Listeners to do when you're analyzing a company's price to earnings ratio, ask yourself is this company optimized for profits today? If the answer is no, don't use the PE ratio.”
2025-09-12 · We Study Billionaires · TIP752: Financial Statements Explained Simply w/ Brian Feroldi · IDENTIFIED FROM THE TRANSCRIPT
“It's optimized for growth. Companies like Netflix or Amazon, when they were in build out mode, were investing heavily in content in the case of Netflix or investing heavily in distribution in the case of Amazon in order to increase their capacity in the anticipation of future growth that would come from future customers. Those proved to be very smart, savvy investments. But as a byproduct of that, it meant that their expenses were inflated when compared to the current size of the business. And since the expenses were inflated or overstated, that means that the company's profits, true profits, were understated. And when profits are understated, that means the price-to-earnings ratio is inflated. And that's why we saw companies like Amazon have a peak year ratio of 400 or 500, and they were actually tremendous buys back then, even though they optically looked extremely expensive. So a key thing I want.”
2025-09-12 · We Study Billionaires · TIP752: Financial Statements Explained Simply w/ Brian Feroldi · IDENTIFIED FROM THE TRANSCRIPT
“You just highlighted probably one of the most confusing aspects of investing in valuation, especially if you're a new investor. And when I first started, I thought that the way that you value a business was by looking at its PE ratio, its price-to-earnings ratio. When I first understood what the PE ratio was, I would look at great companies like Apple, Netflix, Amazon, Intuitive Surgical, all of which had PE ratios that were 50, 80, 100, or even 1,000. And my immediate next thought was too expensive. Can't buy that stock. It is just not for me. The problem is the PE ratio is a highly useful tool, but you have to use it at the right time. The price to earnings ratio is only a meaningful number when a company is fully optimized for generating profits. When a company is in growth mode, it is often not optimized for generating profits.”
2025-09-12 · We Study Billionaires · TIP752: Financial Statements Explained Simply w/ Brian Feroldi · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I see both sides of it. And stock based compensation makes a ton of sense for startup and early stage businesses. Oftentimes, they do not have the cash resources to go out and pay executives their market rate. So if an executive, they want to pay them $5”
2025-09-12 · We Study Billionaires · TIP752: Financial Statements Explained Simply w/ Brian Feroldi · IDENTIFIED FROM THE TRANSCRIPT
“Very non gap number, I automatically deduct points in my head for that company's management team because I think they're focused on the wrong metric. But if a company is touting its gap earnings per share or that's the number that they report to the markets, I immediately give that management team points and credit because that's a much harder number to manipulate. So the onus, like always, is always on the individual investor or the investor that's analyzing the financial statements. do the work to see is this management team trustworthy?”
2025-09-12 · We Study Billionaires · TIP752: Financial Statements Explained Simply w/ Brian Feroldi · IDENTIFIED FROM THE TRANSCRIPT
“With non GAAP accounting, but there's lots of other things that are adjusted for. Some companies choose to exclude one-time events or one-time anomalies from their financial statements. For example, if they close down a factory and they had big severance payments, in theory that is a one-time expense, one-time thing that they have to do. Now with gap accounting, they have to record that one-time expense in their financial statements. But from an operating perspective, it does make sense for a company to say, here's what it is with that expense excluded and here's what the numbers would be without that expense included. This is why some companies find it helpful to report both GAP and non-gap numbers. Now it's up to the individual investor that's analyzing the financial statements to look at the adjustments and see if they agree with the adjustments that are being made. When I'm looking at a financial statement, if I find a company that touts its adjusted EBITDA of”
2025-09-12 · We Study Billionaires · TIP752: Financial Statements Explained Simply w/ Brian Feroldi · IDENTIFIED FROM THE TRANSCRIPT
“Well, it's important that whenever a company reports non-Gap numbers, it tells you precisely the adjustments that it's making to the gap figures in order to come up with them. The most common adjustment that we see that most investors have a problem in, or that there's a big debate about, is the treatment of stock-based compensation. Stock-based compensation is a non-cash expense that, according to GAP accounting, must be accounted for on the company's financial statements. So if a company pays hundreds of millions of dollars in stock-based compensation, that reduces their gap earnings by hundreds of millions of dollars, even though it did not have a cash cost to the business. This is why many companies that pay huge amounts of stock-based compensation also report non-GAP numbers and say, well, if we exclude stock-based compensation from our reporting, here's how much of a profit we would have recorded. That is probably the most common thing that is adjusted for.”
2025-09-12 · We Study Billionaires · TIP752: Financial Statements Explained Simply w/ Brian Feroldi · IDENTIFIED FROM THE TRANSCRIPT
“They give the company more wiggle room to report information that they think is more valid. Here's a simple way to think about gap versus non-gap accounting. I play golf with my son. My son and I played golf the other night and I took a drive and duffed it and I said, I'm going to take a mulligan and I hit a second shot. And then I duffed my third shot out of the sand. It took me two tries and I got up onto the green. And then I putted and I was within like, you know, six feet and I said, it's a gimmick. Well, according to Gap accounting, that's like a nine in the golf scorecard. But if you use non-Gap accounting, I would say that's a five. Non GAAP accounting is massaging the rules and often leaving out certain items to make your financial statements look better.”
2025-09-12 · We Study Billionaires · TIP752: Financial Statements Explained Simply w/ Brian Feroldi · IDENTIFIED FROM THE TRANSCRIPT
“When it comes to creating financial statements, it's important that there are a set of rules and procedures that all companies follow to make sure that the reports that they're issuing to investors are accurate. In the United States, the accounting procedures that we use are called GAP or generally accepted accounting principles, GAAP. And all companies that are publicly traded in the United States are required by law to report their financial statements using GAAP accounting. Now, for some businesses, because of the black and white nature of GAP accounting and the role that a GAP accounting uses when valuing things like intangible assets, sometimes the rules that companies have to follow are too rigid and too black and white. So some companies, especially modern-day tech companies, choose to report in addition to gap accounting non-gap accounting, which is the financials that do not comply with gap accounting.”
2025-09-12 · We Study Billionaires · TIP752: Financial Statements Explained Simply w/ Brian Feroldi · IDENTIFIED FROM THE TRANSCRIPT
“And he asks himself, is the actual value that the company derives from the intangible that it has far higher than what's recorded on the financial statements? That's one way that you can look for a mismatch between what a company is worth in reality and what it's worth on paper.”
2025-09-12 · We Study Billionaires · TIP752: Financial Statements Explained Simply w/ Brian Feroldi · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so that is one way of doing it. You can say how much dollars have we put behind advertising campaigns or in the case of creating intellectual property or materials? Like think about Disney. Disney made the movie Snow White like what? 80, 90 years ago or something like that. But we still know the name Snow White and think of all the ways that Disney has monetized the movie Snow White over the last 100 years. The monetization that they've got out of that movie is enormous when compared to the resources that they put into creating that. So to your point, one way that you can account for the value of a company's brand is to look at the spend that the company has put into sales and marketing over that brand's a lifetime. And that is one way of valuing an intangible asset. It's an imprecise way, but it's kind of the best that accountants have at any given time. This is why one trick that I know that David Gardner uses when he's looking at financial statements is he looks at a company's intangible value.”
2025-09-12 · We Study Billionaires · TIP752: Financial Statements Explained Simply w/ Brian Feroldi · IDENTIFIED FROM THE TRANSCRIPT
“There you go. So two brand names. So I said you need something and you immediately thought of Target and Costco. Is there value in that? Are there millions of people just like you who named, say, a toothpaste or name a computer or name a phone company, they would instantly have something in mind? I would argue that there's tremendous value to that, to having your name implanted in the customer's mind. But how can you express that on a financial statement? It's really hard to do. This is why marrying both the details of accounting with the soft art of analyzing companies at a high level is so important.”
2025-09-12 · We Study Billionaires · TIP752: Financial Statements Explained Simply w/ Brian Feroldi · IDENTIFIED FROM THE TRANSCRIPT
“Think of your product. And if I said to you, Clay, name a store that you would go to to get groceries, what would you say?”
2025-09-12 · We Study Billionaires · TIP752: Financial Statements Explained Simply w/ Brian Feroldi · IDENTIFIED FROM THE TRANSCRIPT
“And how could you possibly come up with a figure? You could go anywhere on the planet and talk to almost any human. And if you said the word Coca-Cola, they would understand what you're talking about and know exactly what you mean, even if they didn't speak English. So what is the dollar value that we should assign to that name? It's really hard to do. And accountants do attempt to put a dollar value behind it, and they do often to make sure the financial statements work. But it's very challenging to do. So much easier to say, what's the dollar value of the manufacturing building where we create the Coca-Cola? You can go in and say, well, how much did it cost to make it? How much is the equipment a cost? And what are the operating expenses of it? And how can we depreciate that over time? That is a much easier thing to come up with. But David Gardner, I have learned so much from him, and he has taught me the value of intangible assets. One, that you didn't touch on is just something called mindshare. Do your customers know?”
2025-09-12 · We Study Billionaires · TIP752: Financial Statements Explained Simply w/ Brian Feroldi · IDENTIFIED FROM THE TRANSCRIPT
“Sure, great question. That simple concept is worth exploring more tangible versus intangible. To me, the word tangible, the easiest way to think about it is tangible means something you can physically touch, intangible means something that you can't physically touch. So a tangible asset would be a store, a retail store that a business operates out of. You can go down and touch a Home Depot. Home Depot stores are a tangible asset. But if I was to say touch the brand name or the copyright for Home Depot, that's something that exists in a ledger somewhere. So you can't physically touch the brand name of Home Depot. So that would be an example of an intangible asset. Companies derive value from both sources and both are really important to know. But the tricky thing about intangible assets is they're often incredibly, incredibly difficult to value. If I said to you, what's the value, the dollar value of the word Coca-Cola? What would you say?”
2025-09-12 · We Study Billionaires · TIP752: Financial Statements Explained Simply w/ Brian Feroldi · IDENTIFIED FROM THE TRANSCRIPT
“Every single transaction that can possibly occur in a company. So when revenue comes in, when sales come in, those would increase the company's retained earnings and it would increase the company's cash balance when an expense is paid. So like employees' salaries are paid or rent is paid. If that was paid in cash, that would decrease the company's cash balance, simultaneously decreasing a company's retained earnings. So it's an incredibly important concept, the concept of double entry accounting to ensure that the master account equation is always perfectly imbalanced.”
2025-09-12 · We Study Billionaires · TIP752: Financial Statements Explained Simply w/ Brian Feroldi · IDENTIFIED FROM THE TRANSCRIPT
“In order to make sure that the balance sheet is perfectly imbalanced. Now, in the case of a company selling stock to other investors, that would affect the shareholders equity portion of the income statement and particularly two numbers. One is Common Stock and the second is called additional paid in capital. So if a company raises a million dollars from selling to investors, cash balance would go up by a million dollars and then Common Stock and additional”
2025-09-12 · We Study Billionaires · TIP752: Financial Statements Explained Simply w/ Brian Feroldi · IDENTIFIED FROM THE TRANSCRIPT
“This is recorded on the balance sheet, and it is the method that keeps the balance sheet in balance. To your point, every time there is a transaction that affects something on the balance sheet, by definition, it also has to affect another ledger to ensure that the balance sheet remains in perfect balance with each other. For example, if a company goes out to the market or goes out to the private markets and raises capital from investors, that's when an investor injects cash into a business in order to fund operations. That would have two transactions that appear on the balance sheet. First, the company is receiving cash from investors. So therefore, the company's cash balance would go up. Now, cash is an asset, so that affects the left side of the balance sheet. And because the left side of the balance sheet is going up, there must be something on the right side of the balance sheet that also increases.”
2025-09-12 · We Study Billionaires · TIP752: Financial Statements Explained Simply w/ Brian Feroldi · IDENTIFIED FROM THE TRANSCRIPT
“Kind of like a movie. So there's a start to it, and there's an end to it, and the income statement records all revenue and expenses incurred during that period of time. And the income statement is used to tell whether a company is profitable or unprofitable, at least on paper. The third financial statement is called the cash flow statement. And this financial statement's purpose is to just track cash movement in and out of a business. So think of this kind of like your personal checking account. It just measures did cash come in or did cash come out. Having all three of these statements is incredibly important because they each give you a different window into a company's financial situation. And it's by analyzing all three of them together that you can get a true picture of a company's financials.”
2025-09-12 · We Study Billionaires · TIP752: Financial Statements Explained Simply w/ Brian Feroldi · IDENTIFIED FROM THE TRANSCRIPT
“Three most important financial statements to know are the balance sheet, the income statement, and the cash flow statement. Let's take them one at a time. The balance sheet is a snapshot picture of a company's net worth on paper at a point in time. The balance sheet follows the master accounting equation. So on one side of the balance sheet is the company's assets. On the other side are the company's liabilities and shareholders' equity. Now the balance sheet is called the balance sheet because those two numbers assets and liabilities plus owners equity must always exactly equal each other or balance, hence the term balance sheet. Now that is the company's balance sheet. Then there's the company's income statement and the income statement tracks a company's revenue and expenses over a set period of time. Now the period of time is typically a quarter or a year. And think of income.”
2025-09-12 · We Study Billionaires · TIP752: Financial Statements Explained Simply w/ Brian Feroldi · IDENTIFIED FROM THE TRANSCRIPT
“Master accounting equation is assets equals liabilities plus shareholders equity. Now that is the accounting way of saying what is a company's net worth? Clay, if I asked you what's your net worth, you'd do a very simple math equation in your head. You'd say, what do I own minus what do I owe equals my net worth? That is the master accounting equation, except for it's in accounting speak. So what you own is a company's assets. What you owe to others is a company's liabilities and a company's net worth is just called shareholders equity or owner's equity. But that is the master accounting equation and it rules the company's financial statements.”
2025-09-12 · We Study Billionaires · TIP752: Financial Statements Explained Simply w/ Brian Feroldi · IDENTIFIED FROM THE TRANSCRIPT
“To me, it's a critical component. I like to think of financial statements as a company's report card to judge how well the business is executing against the story or the promise that the business inherently has. So if you don't know how to read financial statements, I liken that to calling yourself a musician, but not knowing how to read music, it is that important and that fundamental. So for me, I would never make any investment into any stock without analyzing its financial statements deeply.”
2025-09-12 · We Study Billionaires · TIP752: Financial Statements Explained Simply w/ Brian Feroldi · IDENTIFIED FROM THE TRANSCRIPT