No More Bank Runs: Why DeFi Is Changing the Banking Game for Good
Ever since banks were invented, certain aspects of traditional banking have been historically unsavory. One is the centralization of data. If a financial institution is hacked, for example, this can wreak havoc for weeks. After a hack, customers may find that their personal information has been compromised and sold to the highest bidder on the dark web. Also, they may discover that their funds are temporarily unavailable until the bank does its due diligence during business hours. With DeFi, however, this is not a concern. Public ledgers allow all transactions to be stored in a way that is truly secure. This keeps track of the money moving without storing users’ sensitive information in ways that can adversely affect them.

Why Blockchain Is Better

The verification process of blockchain technology ensures that each step of a transaction is processed smoothly. “Blocks” of verified data are encrypted and chained together to present a complete picture of a transaction. Each transaction carries within it the seed of the previous transactions. This leads all the way back to the “genesis” block that is the technological precursor to all the transactions that have followed. Because these transactions are verified over a number of nodes, there is no way that a bad actor can hack into the system and corrupt the historical data of the entire system by meddling with one node. By definition, the system is secure and open in a way that traditional banking has never been.

What Are dApps and How Can They Change the World?

dApps are decentralized applications that help to move the DeFi process along. If applying for a loan in the decentralized ecosystem, the person will use a dApp to submit their request. From there, the loan candidate will see which lenders may fill their requirements. All of the matching is done by algorithms, which is very interesting to those who believe that the current loan system can be highly biased. Many studies have been done that indicate people of a certain racial or socioeconomic background are more likely to receive loans from a traditional banking institution. Algorithms that are constructed well, however, do not discriminate. They allow both borrowers and lenders to find exactly what they need without prejudice.

Many people want to transform the planet, help third-world countries or others in undesirable traditional banking situations. Therefore, DeFi loans may serve as a true equalizer and game changer. In the eyes of these dApps, after all, the idea is that all applicants will have access to the financial tools that will help them to launch their businesses and thrive; with DeFi, these resources will no longer be closed off to the people who need them the most.

dApps Provide Users with Options

In the past, people were often limited to their local banks when applying for a loan. Through DeFi, borrowers can receive a loan from halfway around the world in the middle of the night. With excess fees and sky-high interest rates no longer playing a role in the equation, borrowers now possess the freedom to secure funds in a way that is fair and sustainable. After all, high interest rates can be a huge hindrance to fledgling business owners who are attempting valiantly to pay down their debt. DeFi has illuminated a true opportunity for equality to finally take root in the financial sector.

You Don’t Need a Bank Account with DeFi

Whether you’re purchasing stablecoins, which are crypto products that are tied to a federal currency — or you’re looking to avoid racking up major bank fees for a simple transaction — making use of DeFi is the answer. DeFi fans like that they do not need to set up a bank account that reveals their most private data. As long as they have access to the internet, they can play a valuable role in the decentralized finance community. In the financial world, institutions have often taken advantage of the people they serve. They do this by tacking on egregious fees for simple transactions.

With DeFi, the mission is to eliminate — or cut down substantially — on the number of fees someone will have to pay to move their funds from Point A to Point B. When users do pay fees, the currency is sent directly to the network, which supports the entire ecosystem. Essentially, DeFi cuts out the middleman to make financial transactions faster, cheaper, and more convenient.

In a world in which time has become perhaps the greatest commodity of all, many can see the value of a system that does not require its users to fill up their car with gas and go to a traditional bank then wait in line and experience days of delays while waiting for their transaction to go through. With DeFi, one merely needs to set up a digital wallet and then press a few buttons on their phone. Within a very short period of time — often less than a minute — their transaction is handled securely and conveniently.

When the Old Ways of Banking Can No Longer Serve Customers

Like any new technology, DeFi continues to redefine itself rapidly. The software and hardware programs needed are expanding at a fast clip, and many governments are at a loss for what to do when it comes to regulating DeFi. With fast growth, it is inevitable that regulators have not yet caught up with all the benefits of the system. This is why the prominent politicians who support broad financial reform are also the same people crusading against DeFi, which addresses many of the ills of the current system.

Some regulators have even posited that crypto and ICOs are no different that the traditional securities available on Wall Street. This is a kind of philosophy that possesses the ability to harm the entire blockchain world. The volatility of the crypto market is front page news most days, often to the detriment of the DeFi ecosystem at large. The wild dips and swings of the general crypto market are often attributed to new tokens and coins. These cryptos may or may not be sustainable in the long haul. With DeFi, the landscape is much less tumultuous.

What is Defi? A Promising Technology Poised to Define Web 3.0

In the future, it’s likely that people will marvel at how difficult banking was prior to the advent of DeFi. With so many advantages, the possibilities of DeFi are truly exciting and limitless. Allowing people to dream of their financial horizons like never before, these decentralized resources will catapult the planet into the future.

What is Defi? To learn more about defi, investing and more, sign up for one of our free investment newsletters today. Just visit our best investment newsletters page and select the newsletter of your choice.

The post What is Defi? What Everyone Needs to Know about Decentralized Finance appeared first on Investment U.

The Ups and Downs of DVN Stock

On March 20th, 2020, during the start of the COVID-19 pandemic, DVN stock dropped to $6.08. It was 1992 when the market last saw Devon Energy Corp. (NYSE: DVN) stock trade at that price. Since then, however, the stock has done nothing but reward investors, climbing all the way to $77.85 in early June 2022. That’s an increase of 1180.43%.

However, shortly after this massive climb, analysts made a major negative revision to their near-term forecast for DVN Stock in June 2022. Revenue estimates were cut by 11%, warning investors to curb their enthusiasm, at least temporarily. At that time, Devon Energy 2022 revenue estimates were on pace for $14b. This would mean a 4.4% reduction in overall sales for the past 12 months.

At that time, the most bullish analysts were valuing Devon Energy at $102. Whereas the most bearish came in around $48. The consensus price target fell somewhere in the middle at $80.07. This was a sign that lower sales numbers may not affect DVN stock’s overall market value.

But only weeks later in late July of 2022, the tide began to turn again for Devon Energy. Leading up to the company’s August 1st earnings report date, market positivity began to grow.

DVN Stock – Latest Earnings Report

This past Monday, DVN reported second-quarter 2022 adjusted earnings of $2.59 per share, beating the Zacks Consensus Estimate of $2.38 by 8.8%.

Also during the same report, the Devon Energy Corp. board of directors declared a fixed-plus-variable dividend of $1.55 per share. The payout is based on the company’s second-quarter strong performance and represents a 22% increase from Q1. The board also approved a 13% increase in the company’s fixed dividend ($0.02 per share). In addition, on September 30th this year, the company’s fixed-plus-variable dividend will be payable to shareholders of DVN stock at the close of business on September 12th.

Rick Muncrief, President and CEO had this to say:

“The second quarter saw our business continue to strengthen and build momentum as we delivered systematic execution across the financial, operational and strategic tenets of our cash-return business model,” said Rick Muncrief, president and CEO.

“This success was showcased by production from our Delaware-focused program that exceeded guidance expectations, our streamlined cost structure captured the full benefit of higher commodity prices and we returned record-setting amounts of cash to shareholders. In addition, we took important steps to strengthen the quality and depth of our asset portfolio.

“As a result of the strong financial and operational performance achieved year to date, we have updated our full-year 2022 guidance,” Muncrief commented. “This improved outlook raises production targets, increases free cash flow projections and enhances our ability to accelerate the return of capital to shareholders.”

Devon Energy Update

DVN stock certainly has been on a wild ride this year. Even with the recent price increase, the stock has dropped nearly 6% in the last week. The energy market has been in flux as of late and that may continue for some time. Even so, the company looks solid. Operating cash flow more than doubled year-over-year and free cash flow is at an all-time high. There is increased production out of the Delware Basin, and cash balances have increased by $832 million to a total of $3.5 billion. Keep an eye on DVN stock as it has a history of quick share price increases.

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Activision Blizzard is the world’s largest video game software company by revenue. It has some of the world’s most popular games. To name a few, it owns Call of Duty, World of Warcraft and Candy Crush. Unfortunately, it’s also been plagued by recent management scandals. Does this mean that it’s a good time to buy the dip? Or should you wait until management gets their act together before investing?

Let’s take a look at an Activision Blizzard stock analysis.

NOTE: If you want to learn about other video game stocks, check out my list of top video game stocks.

Activision Blizzard (Nasdaq: ATVI) Stock Analysis

What Does Activision Blizzard Do?

Activision Blizzard is the largest video game software company by revenue. It has three main divisions. Activision develops gaming consoles. Blizzard produces games for PC gaming. King Digital develops and publishes mobile games.

As mentioned, Call of Duty, World of Warcraft and Candy Crush are its most popular games.

Here are a few of its other popular titles:

• Crash Bandicoot
• Hearthstone
• Diablo
• Starcraft
• Farm Heroes
• Spyro the Dragon
• Tony Hawk
• Overwatch

Activision Blizzard stock has been the subject of multiple scandals lately. Let’s take a closer look at those.

Recent Announcements

• CEO Bobby Kotick may step down – Bobby Kotick has been the CEO of Activision Blizzard since 1991 (31 years). Under his watch, there have been over 500 instances of misconduct. This includes workplace harassment, discrimination and unfair pay. Bobby Kotick has said that he will step down if he’s unable to fix these issues.
• Employees walk out – More recently, the WSJ released a report. It stated that Kotick knew about allegations of sexual assault earlier than he claimed. After this report was released, some employees staged a walkout. They also created a petition demanding Bobby Kotick step down. The petition gathered about 1,800 signatures.
• Firings and product delays – Activision Blizzard has fired over 20 employees due to these allegations. These firings have resulted in product delays.

So how have these scandals impacted the Activision Blizzard stock price recently?

Activision Blizzard Stock Movements

In 2020, Activision Blizzard posted annual revenue of $8.09 billion. This was a 24% year-over-year increase from 2019. It also posted a total net income of $2.2 billion. This was a 46.17% year-over-year increase from 2019.

After the reports of misconduct, Activision Blizzard slumped about 40% from its high. Its stock is down 30% overall so far in 2021. However, it’s still up 67% over the past 5 years.

For this article, I’ll keep the fundamental Activision Blizzard stock analysis brief. Instead, I want to dive into the recent allegations. Do these allegations create a good opportunity to buy the dip?

Potential Upsides

In 2018, Nike released a controversial ad with Colin Kaepernick. In this ad, Nike sided with Kap’s decision to take a knee during the national anthem. The ad sparked outrage across the country. Many people hopped on social media to announce a boycott and burn Nike products. During the backlash, Nike’s stock dipped about 10% (end of 2018). However, this boycott ultimately put no visible dent in Nike’s sales. Since the beginning of 2019, Nike’s stock is up over 130%.

Activision Blizzard could be experiencing a similar issue. Now, don’t get me wrong. Activision Blizzard’s scandal is considerably worse than Nike’s ad. Activision Blizzard clearly has a dark, deep-seated issue that they need to address. However, just like Nike, Activision’s underlying business remains strong.

Activision still owns some of the world’s most popular video game titles. The World of Warcraft franchise expects to deliver its strongest engagement in a decade. Candy Crush is the top franchise in the app store. Call of Duty mobile grew its net bookings year-over-year.

Gamers most likely don’t consider the CEO’s actions when playing their favorite games. Very few are going to second-guess their decision to buy the latest Call of Duty. Based on its strong portfolio of games, the long-term outlook for Activision Blizzard stock still looks strong.

With that said, there’s one crucial thing to consider.

Bobby Kotick: In or out?

There is one big question mark for investors right now. That is whether Bobby Kotick will step down as CEO. If I were an investor, I would wait for this decision to be finalized before buying/selling. I view Kotick stepping down as a good thing. As the 30-year CEO, it’s clear that he has created an environment where misconduct is allowed.

If Kotick steps down, it will certainly calm the employee backlash. This will influence many developers to stay. At a software company, having top-notch developers is critical. From there, the company can hire a new CEO and start fresh. When this happens, Activision Blizzard stock could quickly rebound.

But what if Kotick decides to stay on?

Should I Buy Activision Blizzard Stock? Potential Downsides

If Kotick decides to stay then it’s likely that employees will start to leave in droves. The worst-case scenario is that developers leave for rival companies. This will hurt game quality as well as development timelines. Ultimately, it will negatively impact Activision’s business for years to come.

It’s also worth noting that Activision’s business partnerships are also at risk. Namely, Sony, Microsoft and Nintendo have spoken out against Activision Blizzard. Nintendo’s CEO stated, “I find these accounts distressing and disturbing. They run counter to my values as well as Nintendo’s beliefs, values and policies.”

These companies control the gaming consoles where Activision’s games are played. If any of them were to cut ties with Activision then it could be crippling for its business. Again, if Kotick stays on then the risk of these companies cutting ties is higher. To me, the decision on whether or not to buy Activision Blizzard stock relies on Bobby Kotick. I would wait until he makes his decision, or the decision is made for him.

Activision Blizzard is also a major player in the metaverse. To read more, check out my article on the best metaverse stocks to buy.

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I hope that you’ve found this Activision Blizzard stock analysis valuable. As usual, base all your investment decisions on your own due diligence and risk tolerance.

The post Buy the Dip? Activision Blizzard Stock Analysis appeared first on Investment U.

Additionally, what started with just a mouse has grown into one of the largest entertainment conglomerates in the world. Today, Disney boasts a list of assets that has just about everything consumers love:

1. Disney Animation
2. Pixar
3. Marvel
4. Star Wars
5. Hulu
6. ESPN
7. 21st Century Fox

As far as investing goes, Disney is one of those rare stocks where it’s almost never a bad idea to buy some. Disney has seemingly unlimited demand for its movies and parks. It’s essentially a money-printing machine… Or at least it was until the coronavirus pandemic hit.

COVID-19 forced Disney to shut down its parks completely for just about an entire year. That made a Disney stock forecast slightly more difficult in the past. Nonetheless, the significance of this can’t be overstated. Disneyland has closed down just twice in its 66-year history. The first time was in 1963 when President John F. Kennedy was assassinated. The second was in 2001 due to the 9/11 terror attacks.

So, will the pandemic have a long-term negative impact on Disney’s stock price? Or is it a short-term issue that has created a great time to buy more stock and average down?

Let’s take a look at a Disney stock forecast and find out!

Disney Stock Forecast (NYSE: DIS)

When making a Disney stock forecast, it’s important to look at its leadership team. Notably, Disney recently welcomed a new CEO. Bob Chapek took the helm in February 2020 after former CEO Bob Iger stepped down. If you’ve ever felt stressed at your job, just imagine taking over as Disney’s CEO just one month before a once-in-a-lifetime pandemic strikes.

Prior to stepping down, Iger had an incredibly successful run as Disney’s CEO. In total, he was there for 14 years. During his tenure, Disney’s stock price increased by about 12% annually. He was also responsible for buying Star Wars, Marvel, and Pixar as well as launching Disney+. On one hand, investors can rest easy because Chapek is taking over a well-oiled machine. On the other hand, Iger’s leadership will definitely be missed.

With a massive company like Disney, it’s important to understand all of the different ways that it makes money.

Disney’s business segments:

• Media Networks
• Parks, Experiences, and Products
• Studio Entertainment
• Direct-To-Consumer (DTC)
• International

In 2019, these business lines brought in $69 billion in total revenue and net income of $11.5 billion. This translated to annual earnings per share of $6.64. 2020 was obviously a much different story as several key pieces of Disney’s business were closed for months on end. However, Disney has bounced back strongly in 2021 and reported Q3 2021 revenue of $17 billion. Its bottom line has also been back in the green recently. Disney posted a net income of $901 million in Q2 2021 and $918 million in Q3 2021.

Disney’s saving grace during the pandemic was mainly its new streaming service: Disney+. While parks were closed and movie production was halted, Disney+ was able to continue as usual.

On July 3rd, 2021 Disney announced the following membership numbers:

• Disney+ – 116 million
• ESPN+ – 14.9 million
• Hulu – 42.8 million
• Total membership base – 173.7 million

Ready For The Competition

For reference, the top streaming dog, Netflix (Nasdaq: NFLX) currently has about 209 million subscribers. What makes Disney such a formidable foe in the streaming industry is the size of its content base.

Disney has decades of content to pull from to offer its viewers. Additionally, it has plenty of wells to draw from in terms of finding new content. Pixar should continue to churn out popular movies. Old characters could be revamped in new spinoff shows. Plus, fictional worlds like Star Wars or the Avengers can continue to be expanded on. And all of this will take place exclusively on Disney+.

Additionally, the fact that Disney also owns ESPN and Hulu means that Disney can bundle its services together. This means a higher overall value for customers, which creates another advantage over competitors.

Disney+ is still just about 2 years old. But it will be interesting to continue watching how Disney leverages this new service.

Disney Stock Price Forecast

Disney stock price has been a little more volatile than normal over the past year or so. In early 2020, it dropped by over 40% during the height of the pandemic crash. However, it rallied through the rest of 2020 and ended the year +20%. So far in 2021, Disney stock has mainly moved sideways.

It’s interesting that Disney’s stock has moved sideways while the overall market is up about 18%. That being said, Disney’s stock is up by about 90% over the past 5 years.

Disney Earnings Report

Disney’s next earnings report is scheduled for Nov. 10th, 2020.

Despite the turbulence from the COVID-19 pandemic, Disney’s recent earnings reports have been strong. Disney has beaten its past 4 earnings per share (EPS) expectations and 3 out of 4 of its revenue expectations. For the most part, it hasn’t even been close. For example, Disney has beaten its last 4 EPS expectations by 69%, 194%, 202%, and 45% respectively.

Disney has missed just one revenue expectation by 2% in Q2 of 2021. Interestingly, these strong reports have not really resulted in a rising stock price. So far in 2021, Disney’s stock is actually down 2%. This has made it somewhat difficult to compute a Disney stock forecast.

Is Disney Stock A Buy?

To answer this question (for any company) it’s always a good idea to look at what lies in the future. In Disney’s case, there are three newsworthy events coming up to consider.

First, Disney has already secured the year’s two highest-grossing films (Black Widow and Shang-Chi and the Legend of the Ten Rings). However, another star-studded film is set to release on October 15. The Last Duel will feature Matt Damon, Ben Affleck, and Jodie Comer. It’s also being directed by ​​Ridley Scott.

Second, on October 19 Disney will introduce Disney Genie to its Florida park. This new planning tool will let guests reserve spots in line, create itineraries, and purchase paid access to fast lanes. If this rollout is successful, it could be a great value-add to visiting a Disney theme park. Since Disney parks were closed for almost all of 2020, there is likely to be a resurgence in park attendance as families try to reschedule previous trips and make up for lost time.

Lastly, Disney World has announced a new resort set to debut in March 2022. This premium resort is called Star Wars: Galactic Starcruiser. It will offer guests a two-night fully immersive cruise through “outer space.”

The Bottom Line on Disney Stock

In summary, The Walt Disney Company has had one of the toughest stretches in its history. However, it has successfully navigated the worst of the pandemic and it seems as though clearer skies are ahead. As far as its earnings expectations, Disney has largely outperformed analysts’ expectations. Despite this, Disney stock has moved sideways for most of 2021. But for how long that continues is uncertain.

I hope that you’ve found this Disney stock forecast valuable when it comes to learning whether or not you should buy Disney stock! As usual, all investment decisions should be based on your own due diligence and risk tolerance.

And if you’re looking for additional information on the best stocks to buy and hold, we recommend signing up for the Liberty Through Wealth e-letter. In it, Alexander Green helps investors find investment opportunities with the most momentum before institutional investors get in on the action. All you have to do is enter your email address in the box below to get started.

NOTE: I’m not a financial advisor and am just offering my own research and commentary. Please do your own due diligence before making any investment decisions. I also have a small position in Disney.

The post Disney Stock Forecast: Is This Beloved Institution a Buy? appeared first on Investment U.

As a result, the company is announcing a dividend & buyback program to share the success with stockholders. Additionally, WY stock looks to be breaking out of a downward channel after yet another impressive earnings in the second quarter. How long will the strong housing market last? And when it ends, how much will it affect the business?

Let’s dig a little deeper into the company and find out how they are planning for the future.

How Does Weyerhaeuser Stock Operate?

Although Weyerhaeuser is set up as a REIT, it deals with raw wood and wood products. With that being said, the company has three primary areas of business.

1. Timberlands
2. Wood Products
3. Real Estate, Energy & Natural Resources.

Timberlands are woods used to harvest trees. They are also capable of producing for a longer period. With that in mind, the company is the largest private timberland owner in North America.

The forest company owns a diverse portfolio of assets with 3 million acres in the west, 7 in the south, and another up north. This diversification helps to support the company’s supply chain.

As far as wood products go, the company produces lumber, OSB, and EWP. It’s the #1 EWP and #2 lumber producer in North America. The market share is helping the organization’s earnings with higher demand globally for wood products.

Lastly, the company also operates a real estate, energy & natural resource business to help enhance the other segments. Energy & Natural Resources consist of services such as solar, gas, and industrial materials. Weyerhaeuser’s energy portfolio is currently 67% industrial materials, 25% oil & gas, and 8% solar & wind.

Strong Q2 Earnings From Weyerhaeuser

The second quarter couldn’t have been much better for Weyerhaeuser stock. You can see big growth in several areas of business. In fact, the company’s CEO said “In the second quarter, our teams again delivered the company’s strongest quarterly results on record.”

With that being said, here are a few highlights from the report.

• Net earnings of $1.02 billion, compared to $681 million in the first quarter, almost 40% growth. Equaling out to $1.37 diluted EPS vs $0.91 last quarter.
• Adjusted EBITDA totaled $1.6 billion in Q2, in comparison to $386 million a year ago. In a year, the company’s top line grew by over 120%, a new record.
• Delivered record operating cash flow for the quarter with $1.3 billion.
• Debt was reduced by another $225 million.
• Adjusted funds available for distribution nearing $1.9 billion for shareholders.

All in all, the record quarter helped boost the company’s financial position. For example, Weyerhaeuser has grown its earnings and now plans to share returns with investors.

What’s Fueling the Growth?

Several events are fueling the company’s growth. Most importantly, the booming industry is boosting the company’s main revenue streams.

Weyerhaeuser’s second quarter was greatly affected by the higher demand for housing. Altogether, the U.S housing market increased 17.4% from the second quarter of 2020. Higher demand for housing equals higher demand for wood products, particularly lumber.

As a result, wood products grew 43% to 1.4 billion in sales. Not only that, but Timberlands also advanced 5% on higher demand for raw materials. The forestry company noted the higher need in markets such as China for the increase.

Yet the housing market is expecting to slow down at some point. When this happens, it can have dramatic effects on Weyerhaeuser stock and its overall business. But, the slowdown isn’t expecting to happen all at once. And on top of this, home improvement projects are still strong. And another trend emerging is the rising demand for wood fiber.

Outlook Going Forward

Although Q2 was record-breaking for the company, a slowdown in the housing market can slow its earnings potential.

In both the Wood Products and Timberlands units, the company expects a significant slowdown in the third quarter. The reason for this is because of lower lumber prices. Lumber hit a record high in May, extending to over $1700 as demand for housing shot up. But, since then, lumber prices have fallen, settling around $635 today. That’s over a 90% difference.

With that in mind, when lumber prices fall, mills like Weyerhaeuser lose out on profits. Luckily, the company is expecting more production out of Real Estate & Energy. The firm is raising its guidance to $290 million from the previous $255 million.

Yet, a few key events may be limiting the company’s earnings potential. First, Hurricane Ida stopped production in the southern U.S. Secondly, fires in the west also made business challenging. And lastly, the pandemic is restricting its ability to staff, particularly in transportation. How will this impact the Weyerhaeuser stock forecast?

Is It Time to Buy Weyerhaeuser Stock?

To sum things up, Weyerhaeuser delivered an impressive showing in the second quarter. But, with lower growth expectations, can the stock continue its run?

The company is betting on the future with three in demand business segments. Each division of business helps support the company’s goal of providing returns to shareholders. With that being said, Weyerhaeuser stock is up over 170% since its lows in March 2020. A strong housing market is supporting the company’s growth. And lumber prices giving an extra boost.

But, if you notice, WY stock moves similarly to lumber prices. Both WY and lumber peaked in May and have since fell lower. CEO Devin Stockfish says the “outlook remains favorable,” adding strength in the housing market.

If demand for homes remains high, investors should continue to see the benefits. Additionally, the company is taking advantage of its growth by improving its financial position.

With lumber prices dropping, it’s putting pressure on the company’s margins. We’ll see how the company is navigating the changes when it reports Q3 earnings on Friday, October 29th.

For more on Weyerhaeuser stock, timber stocks and other trending industries, sign up for Profit Trends. This free newsletter will help you stay up-to-date on all of the latest investment news. Start making better trades today!

The post Weyerhaeuser Stock – Betting on the Future of Forestry appeared first on Investment U.

At face value, a P&L statement shows the company’s ability (or inability) to generate profit. It breaks down the income and expenses of the company during the period, and shows how efficiently the company uses its cash. No matter the size or complexity of the company, the profit and loss statement is a direct window into operations from a financial standpoint. Here’s what investors need to know. 

Multiple Names for the Same Information

Profit and loss statements go by many names. This can be confusing for new investors looking for sales and revenue data, operating costs and profit information. Companies may call their P&L statement any of the following:

• Statement of operations
• Statement of financial results
• Earnings statement
• Expense statement
• Income statement

The reason for all these names? They’re all explanations of the information you’ll find on one. The best way to ensure you’re looking at the right document is to look for operating figures and profit data. Often, P&L statements come packaged with the company’s balance sheet and cash flow statement, for context. 

To make things even more confusing, a P&L for nonprofit organizations is often called a statement of activities. 

Types of P&L Statements

While a P&L statement will always summarize the revenues, costs and expenses of the company, it may do so differently depending on the accounting method used. Smaller companies tend to use cash basis accounting, while public companies use accrual. 

• Accrual-based statements. Accrual basis accounting realizes transactions at the point of origination. This means that accrual P&L statements also include future revenues that are already earned but not realized. The same goes for liabilities. 
• Cash-based statements. Cash basis accounting records transactions only when money changes hands. A cash accounting P&L statement will only reflect revenues and expenses that have already transacted.

While cash-based P&L statements are simpler to review and digest, accrual-based statements are more accurate and representative of a company’s financial position. 

What’s Listed on a Profit and Loss Statement?

The P&L statement breaks down revenues, costs and expenses into individual line items based on how they’re incurred over the reported period. Here’s a look at the chief categories broken out on an income statement:

• Revenue (or Sales)
• Cost of Goods Sold (or Cost of Sales)
• Selling, General and Administrative (SG&A) Expenses
• Marketing and Advertising
• Technology/Research & Development
• Interest Expense
• Taxes
• Net Income

Larger, more complex companies will invariably have more complex statements to account for diverse financial activity. Smaller companies will similarly have simpler statements, with fewer types of profit and loss data to report.

What Does the Profit and Loss Statement Tell Investors?

Investors looking for information about a company’s profits will find it on the P&L statement. How profitable is the company? How are those profits generated? What expenses stand in the way of higher profitability? The P&L statement contains this information and more. Some of the key line items displayed include:

• Gross profit margin
• Operating profit margin
• Net profit margin
• Operating ratio

The profit and loss statement also paints a picture of general financial health for the business over time. P&L statements compared over different periods will tell the tale of a company’s ability (or inability) to grow by increasing sales, decreasing expenses and managing costs. 

All public companies are required to produce a P&L statement and file it with the Securities and Exchange Commission (SEC). Moreover, like all formal financial statements, P&L statements must comply with GAAP reporting standards and stand up to rigorous auditing by a third party. 

P&L Statement vs. Balance Sheet

A profit and loss statement shows the company’s income, expenditures and profitability for the period. The balance sheet shows current assets and liabilities at the time it’s issued. Investors use the balance sheet as a gauge of the company’s intrinsic value and financial strength. Meanwhile, the P&L statement tells the tale of efficiency and trajectory as it relates to operations. Both are important documents in their own right.

P&L Statement vs. Cash Flow Statement

Cash flow statements measure the sources and uses of cash coming into and flowing out of a business over a reporting period. Meanwhile, the P&L statement shows the company’s performance over that time frame. The cash flow statement provides context for the P&L statement by showing that the company can remain solvent throughout the course of everyday operations. Both statements offer useful insight into a company’s financial operations, and are especially useful when juxtaposed together. 

A Measure of Operating Efficiency Over Time

Comparing profit and loss (P&L) statements over consecutive periods or from previous periods paints a picture of how the company is able to manage growth. Have revenues increased? Have expenses gone up? What’s the proportion of growth between these figures? 

And these figures can go a long way in helping investors determine if a company is a good investment or not. To learn how you can build wealth through the stock market, sign up for the Liberty Through Wealth e-letter below.

Generally, companies that can grow revenue while minimizing expenses will find themselves more attractive to investors. Conversely, companies that aren’t growing will show stagnation. Investors need to take insights from the profit and loss statement—as well as the balance sheet and cash flow statement—and use them to inform decision-making. Look for companies that know how to grow revenues, manage expenses and operate with efficiency from period to period.

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None. Zero. Zilch.

In fact, 35% of Americans said they would have difficulty covering an unexpected $400 expense.

This has brought on the predictable complaints about economic inequality, our “rigged” system and how capitalism is broken.

That’s Bravo Sierra. And you know it.

Let’s consider a few basic facts… always a good starting point.

In 2019, U.S. median household income reached a record $68,703.

Unemployment is declining. Wages are growing.

And, as the Federal Reserve recently reported, U.S. household net worth is also at a new all-time record.

If capitalism is broken, please do me a favor. Don’t fix it.

“But not everyone is sharing equally in the prosperity,” critics say. What they don’t say is that people in free societies everywhere have unequal outcomes.

You want great economic equality? Visit North Korea. Or Cuba. Or Venezuela. Everyone is equal in their misery.

Capitalism isn’t broken. What’s broken are public education and today’s context-free journalism.

For starters, academia and the mainstream media apparently don’t realize that capitalism is an economic system, not a political one.

In a free market system, highly skilled people who work the most get paid the most. Less skilled people get paid less. And people who can’t or won’t work don’t get paid at all.

Then our political system – through taxes and transfer payments – leavens that inequality.

Of course, millions of folks, whether they have high incomes, low incomes or something in between, don’t live within their means.

They have comfortable salaries. (And homes, cars, trips, meals out… and closets, attics and garages full of stuff.) What they don’t have are savings. Not because the economy is broken but because they don’t live within their means and set something (anything) aside.

Or perhaps they saved but – because they’re risk-averse or uninformed – never invested those savings to earn higher returns.

True, some lucky ones are born with higher IQs and into more affluent households with better or more devoted parents. That’s life. And, as your mother told you when you first complained about it at age 4, it isn’t fair.

No politician, no law, no social program and no magic wand can change that.

Good or bad, we all must play the hand we’re dealt. You do that by 1) making the very best choices you can and 2) taking responsibility for your actions.

If you don’t do those things, trust me – you will not have a happy, successful life.

Yet some today – especially politicians running for office – don’t want you to feel responsible for the life you’ve created with your choices.

Didn’t stay in school? Not your fault.

Don’t have any marketable skills? Not your fault.

Can’t keep a job? Not your fault.

Can’t stay out of trouble with the law? Not your fault.

Had kids you can’t support? Not your fault.

Never saved a dime… and certainly not $400? Not your fault either.

Welcome to the new “post-responsibility” society, where individual efforts don’t matter and it’s wrong to judge others by their character and actions.

Sorry. I don’t buy it.

I have a middle-class background myself. I grew up in the South in a home without air conditioning. (I also went to crummy public schools that weren’t air-conditioned.) I had no great genetic gifts, no connections, no inheritance.

In college, I could not afford to call home except on Sundays after 7 p.m. (Remember those days?) I didn’t take (because I couldn’t afford) a commercial flight until I was in my mid-20s.

As a young man, I worked a succession of tedious, brain-dead, low-paying jobs, including waiting tables in a tavern, maintenance on a truck terminal and the night shift in an auto parts warehouse.

I lived in modest accommodations, drove a beater car (the stereo was worth more than the vehicle), never ate out, owned no valuable possessions, spent little on entertainment (hiking, swimming, reading and tennis are free) and virtually never traveled.

(When I did, it wasn’t far. I had no passport and certainly no money to spend abroad.)

Yet two things stick out from this period.

One, never in my wildest dreams did I imagine the system was rigged, capitalism was broken, or some friend, family member or government bureaucrat would bail me out…

And two, those were some of the very best times of my life. After all, none of my friends had money either, so we made our own fun. (A good meal and lively conversation don’t cost much.)

I never felt poor. Why? Partly because I saved a little bit of every paycheck. (Frankly, I was afraid of what might happen if I didn’t.)

Being broke is a temporary condition. Being poor is a state of mind.

I fully support most social welfare programs, incidentally.

Some adults are constitutionally incapable of making a good decision, but there are often kids to consider.

Others are struggling, and it really isn’t their fault. They have severe physical or mental disabilities, emotional problems, terrible luck, or truly lousy circumstances.

But could this possibly describe 35% of Americans? Of course not.

We all make regrettable decisions. But the best of us face up to them. We don’t search for some person, circumstance or aspect of society to blame.

The people who encourage you to do that really aren’t your friends. “It’s not your fault” is not empowering. It’s disempowering.

After all, if you didn’t help create your circumstances, how can you change them?

It’s when we take what Navy SEALs Jocko Willink and Leif Babin call “extreme ownership” that we can solve our most pressing problems, financial or otherwise.

If you are an able-bodied adult who cannot get your hands on $400, you haven’t maximized your marketable skills, or worked long and hard enough, or lived within your means, or regularly saved and invested a portion of your income.

Or all of the above.

Fortunately, you have the power to change that.

There will always be some who expect to thrive and prosper in a “post-responsibility” society. But they are headed for inevitable disappointment.

Why? Because we do not live in a “post-reality” world.

Good investing,

Alex

Click here to watch Alex’s latest video update.

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Structured notes are financial products that, depending on the individual product, can limit losses while supplying income or allowing an investor to take part in the market’s gains.

They’re complicated products shrouded in a bit of mystery. And not surprisingly, you pay for all of that convenience and minimized risk.

In the case of a structured note, there are usually no fees, but the financial institution behind the note is not a charity. It is making money off your money and paying you back a little less.

The same is true with other products, like annuities and whole life insurance.

These products are designed to be complex. The less you understand and the stupider you feel, the fewer questions you’ll ask and the more likely you’ll be to pay to let the “experts” handle it.

I hate that strategy. I believe the more information you have, the better choices you’ll be able to make that will help you secure your finances – rather than some financial institution’s executives’.

Annuities and whole life insurance are similar.

Annuities in particular are such intricate financial instruments that 99 out of 100 annuities salespeople couldn’t tell you the mechanics behind how they actually work.

And with interest rates so low these days, investors, particularly retirees seeking income, are willing to put up with just about anything in order to get a few percentage points of yield.

I dislike annuities so much that I wrote a chapter on them called “The Worst Investment You Can Make” for my book You Don’t Have to Drive an Uber in Retirement, which was named the 2019 Investment and Retirement Planning Book of the Year by the Institute for Financial Literacy.

Whole life insurance policies are also more complicated than they need to be.

If you need life insurance, term life is the cheapest and simplest way to go. If you need to save and invest for retirement, then save and invest for retirement. Just don’t combine it with insurance.

You’re paying for that convenience – and for other “benefits” that are likely not going to affect your life in a meaningful way and will probably cost you money.

When you buy a whole life policy (or any policy that has a cash value), part of your premium pays for your insurance, part goes to your investment and a big chunk goes to pay those hefty commissions that salespeople enjoy.

Insurance agents typically collect up to 100% of your first year’s premium as commission. Over the life of the policy, they’ll receive 15% to 25% of your premiums.

That is a tremendous amount of your money that is not working for you. How much more money would you have if you invested 20% of a proposed whole life insurance premium in the market over the long term?

Furthermore, there are all kinds of ramifications if you miss your premium payments. You could lose your insurance or could be charged fees for letting the policy lapse, and if you want to take your money out early, you’ll be charged more fees.

Conversely, if you have a cheaper term life policy and a regular investment account and can no longer contribute to the investment account, there are no penalties or fees and you’ll keep your insurance as long as you continue to pay your premium, which may be one-tenth or less the cost of a whole life policy.

For example, let’s say you’re 50 years old with a $500,000 whole life policy. You will pay a minimum of $9,432 per year versus just $842 for a 20-year term policy.

Going back to that 20% commission on your premiums… If you’re paying $9,432 per year and your insurance salesperson earns 20%, you’re paying them $1,886.40 per year, or $37,228 over 20 years.

If you put that money into the market and earn 8% per year compounded, after 20 years, you’ll have an extra $102,083. And remember, these figures are with the cheapest policy. You’ll likely pay even more.

Of course, the whole life policy will pay a death benefit for the rest of your life as long as you pay the premium. The term life policy will expire when you are 70 years old.

But since life insurance really should be used to replace lost income, not to provide a windfall for one’s heirs, most people probably don’t need a lucrative life insurance policy in their 70s, 80s and 90s.

The good news is that with all of these ornate financial products out there, the most effective way to invest is actually the simplest and cheapest and keeps more of your money in your pocket. Invest in quality companies for the long term and reinvest the dividends.

With today’s low- and no-commission brokers, it hardly costs you anything at all to be a long-term investor.

Investing the right way isn’t hard. Avoiding the noise about why you need complicated products is.

And by the way, in that 100th issue of The Oxford Income Letter, I also discuss an investment that is risk-free, has no fees and is guaranteed to yield at least 3.5% (and likely more).

Click here for more information.

Good investing,

Marc

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