Hey Reader,
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Did you know? Bezos initially wanted to name his company "Cadabra," as in "abracadabra," but changed it to "Amazon" after concerns that it sounded too much like "cadaver." Good chocie, huh?

In today's issue:

• Learn how Warren Buffett analyzes a Balance Sheet
• Aswath Damodaran's take on potential tech breakups
• Why we need to find companies with long reinvestment runways
• The ins and outs of Deferred Revenue
• Much more....

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💎NUGGETS

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My Favorite Finds

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Brian Feroldi breaks down how Warren Buffett analyzes a balance sheet (simply as always).

Aswath Damodaran's take on the potential of big tech breakups. It's always worth our time (I'm not kidding).

​Warren Buffett breaks down ROIC and capital returns into three categories, great, good, and gruesome. Learn why he believes this (will help your returns).

10-k Diver breaks down why we should find companies with long-reinvestment runways. These companies offer great returns even if we "pay" a little more.

Great answer to this often asked question. Do Vanguard, BlackRock, and State Street Run the World?​

Must listen podcast conversation between William Green and Jason Zweig. New takes on the updated Intelligent Investor (75th Anniversary).

🔍DEEP DIVE

Deferred Revenue Explained:

Understanding deferred revenue is crucial for financial professionals and investors alike.

Deferred revenue, also known as unearned revenue, is payment for goods or services not yet delivered.

It appears in the liabilities section of a company’s balance sheet.

This shows the company owes a product or service in the future.

Why is deferred revenue so important?

1. 𝗙𝘂𝘁𝘂𝗿𝗲 𝗥𝗲𝘃𝗲𝗻𝘂𝗲 𝗜𝗻𝗱𝗶𝗰𝗮𝘁𝗼𝗿: It signals future income already secured by the company, offering insights into financial health.
2. 𝗖𝗮𝘀𝗵 𝗙𝗹𝗼𝘄 𝗠𝗮𝗻𝗮𝗴𝗲𝗺𝗲𝗻𝘁: Provides upfront cash for operations and investments, maintaining liquidity.
3. 𝗥𝗲𝘃𝗲𝗻𝘂𝗲 𝗥𝗲𝗰𝗼𝗴𝗻𝗶𝘁𝗶𝗼𝗻 𝗖𝗼𝗺𝗽𝗹𝗶𝗮𝗻𝗰𝗲: Ensures accurate financial reporting by recognizing income in the appropriate accounting period.
4. 𝗖𝘂𝘀𝘁𝗼𝗺𝗲𝗿 𝗖𝗼𝗺𝗺𝗶𝘁𝗺𝗲𝗻𝘁: Reflects strong customer trust and confidence in the company’s ability to deliver value.

Company Examples:

• 𝗦𝗮𝗹𝗲𝘀𝗳𝗼𝗿𝗰𝗲: As a SaaS company, Salesforce collects upfront payments for annual subscriptions. Deferred revenue is crucial. It reflects the company’s future revenue and customer commitments.
• 𝗔𝗶𝗿𝗹𝗶𝗻𝗲𝘀: Companies like Delta Airlines sell tickets in advance. Deferred revenue from these ticket sales indicates future service obligations and ensures cash flow for ongoing operations.

What can investors learn from deferred revenue?

1. 𝗥𝗲𝘃𝗲𝗻𝘂𝗲 𝗦𝘁𝗮𝗯𝗶𝗹𝗶𝘁𝘆: Healthy deferred revenue indicates predictable future income, reducing uncertainty.
2. 𝗖𝗮𝘀𝗵 𝗙𝗹𝗼𝘄 𝗜𝗻𝘀𝗶𝗴𝗵𝘁: Shows the company’s liquidity, essential for evaluating financial health.
3. 𝗚𝗿𝗼𝘄𝘁𝗵 𝗣𝗼𝘁𝗲𝗻𝘁𝗶𝗮𝗹: Increasing deferred revenue suggests a growing customer base and sales, indicating a robust market presence.
4. 𝗤𝘂𝗮𝗹𝗶𝘁𝘆 𝗼𝗳 𝗘𝗮𝗿𝗻𝗶𝗻𝗴𝘀: Examining the relationship between deferred and recognized revenue reveals the reliability of a company’s financial reporting.

Deferred revenue is not just a line on the balance sheet.

It’s a key sign of future performance and financial stability.

Understanding it gives valuable insights into a company’s health.

📖Knowledge Tidbits

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The Investing for Beginners Podcast @IFB_podcast Calculating ROIC + Growth Rate for $V 12:2 PM • Oct 19, 2024 70 Retweets 431 Likes Read 6 replies

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Thanks,
Dave Ahern
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​einvestingforbeginners.com​
​Investing for Beginners Podcast​

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