An Introduction to Financial Accounting Free Wharton Course on Coursera

Here’s the link for course ->

Read this (A true story copied from the internet)

 As we all know, public companies all hope to earn more profits,but the public company I mentioned suffered loss this year.
The loss was heavy, about RMB100 million. But this company didn’t want others to know about its loss,so it was determined to change the loss to profit.But how can it make it happen? It discovered that it had about RMB160 million worth of debt with banks. You may think there is no link between having debt and the status of profitability. However, this company said that the debt was not due yet, so it would repay ahead of the due. Then what could be taken as the repayment? It used a house worth RMB30 million. You may wonder how a RMB30 million house can repay the RMB160 million debt. The company would say, it used the house as the mortgage and would spend RMB160 million cash on buying back the house on the second day. You will see that in this whole process, the house was not given to the bank at all. In the end, the company would use RMB160 million cash to pay for the RMB160 million debt.But things are different now. How come?Let’s think in this way.
On the first day, the company took RMB30 million house as the mortgage for the repayment of the RMB160 million debt.
So we can say it earned RMB130 million, minus its loss worth RMB100 million then we get RMB30 million profit.You may think it invalid because the house would be bought back on the second day with RMB160 million cash at a price of RMB30 million. No doubt this was a bad deal, but what happened to the financial statement of the company? Up until now, you may have no idea. But I can tell you an important principle, that is, your profit is only related to things you sell. So to buy a RMB30 million house with RMB160 million cash will not affect the profitability because it is not selling things. The only impact on the financial statement is that the house value increased from RMB30 million to RMB160 million. As a result, several changes happened to the financial statement of the company. First, it would turn from a company suffering
from RMB100 million loss to one with RMB30 million profit.
Second, there is one item in the category of asset on the statement calling house.
Its value would increase from RMB30 million to RMB160 million.
You may have different thoughts about whether this company is involved in fraud.
In fact, a famous media did accuse this company of fraud.
But in the end, the company filed a law suit against the media for defamation.
Can you guess the result?
The company won the case. Why?
The judge recognized that the company’s behavior didn’t break the accounting principles,
therefore, no fraud involved.
As you can see, without doing fraud,
a company with RMB100 million loss can become one with RMB30 million profit.

Now as an investor would I want to invest in such a company. NO and NEVER. If I just saw the results like most novice investors do they would have been carried away with a 30million profit but if it was somebody who was smart enough the go through the entire earning profile, understand and comprehend it correctly, you would have been spared the agony. So therefore, its important to educate oneself against these frauds and also identify hidden gems. Sometimes, even opposite happens, especially with small caps where the balance sheet is very strong, but purely its a small company its away from the limelight and thats where maximum compounding happens.

If you are a non-finance guy like me and want to know a bit about accounting, so as to read and analyze balance sheets, understand cash flows, Statement of profit and Loss etc, I would recommend this course. Here’s the link ->

I had to go through the pains of reading text books to brush up my accounting skills. I hope this course would help others like me.

NOTE: I will not spend my energy in answering any accounting related questions 🙂 . Please use the forum on the coursera to do it.

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29 Responses to An Introduction to Financial Accounting Free Wharton Course on Coursera

  1. Salim Khan says:

    How is datamatics global for long term

  2. Rakesh Sankhala says:

    Sir, your view on Astra Microwave for Long Term? I am holding it from 60 odd levels and its CMP is 130rs. Need your view on this one?

  3. Stinkyfeet says:

    Dear aceinvestortrader,
    How would you rate Makers Laboratories. Your insights on this would be invaluable.
    Thanks a lot for the write up on cooking up of accounts and the accounting course.
    All less informed investors would jump into the pit unknowingly. Thanks for the heads up.
    Kindly accept my heartfelt gratitude for the recos you provide here and hope some day a lot of us readers would be able to rely on our own conviction in picking good stocks. I’m new here and hope to learn a lot from you. Thanks once again.

  4. Salim Khan says:

    What about suven life science and Marian’s pharma

  5. Salim Khan says:

    Hi god’s grace my investment in V2 retail and Waterbase is paying well…..thanks for you insight.

  6. ravi multani says:

    gud evng ace
    yesterday ur comment abt manjushree really helped me a lot…..can i buy singer now or wait for some more dip….

  7. ravi multani says:

    Thanks for ur reply
    how much downside do u see
    5% or 10%
    so tht i can accumulate
    and second thing u r jordaar
    ur comments and reply makes my investment bullet proof for me

    • i do not know the downside. But hopefully, its not more than 15% from here. That does not mean it cannot go down more than 15% or it has to go down atleast 15%, but that’s my hope. No body knows how stock markets behave and no body for sure knows, the exact levels. This is my thinking about levels, rest please develop your own conviction and then only invest. Best of luck with your investment.

  8. Salim Khan says:

    Sorry ….typing error….it’s Markans pharma

  9. A P says:

    Hi aceinvestortrader, please give your views on Rolta for investment.

  10. sir your views on shilpi cables company is trading at a p\e of 3 and has recently announced 1:1 bonus and 10% divident

  11. Sir,
    Please give best indian stock screener website name.

  12. Sir
    I m holding marksans pharma@19, now it’s CMP is 53. What’s your view buy or hold or sell it now. I m thinking to switch from marksans pharma to aimco pesticides for holding around a year. Please provide your valuable view for my thinking.

  13. ramesh says:

    What is your opinion on Dhoot Industrial Finance (526971) and Trident also.I am eagerly waiting for your reply before investing in it.Kind request to look into the stock if you do not track it.Thanks in advance…

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