Making Sense of Mining Numbers

Understanding Financial Statements
Those long columns of numbers at the back of a company's annual report may seem dry, but they can reward the investor who takes the trouble to give them careful study. An investor can decide whether or not a stock is worth his while by learning the past earnings record and current financial health of a company. The better informed the share-holder, the safer he is, especially in the case of high-risk junior companies.

To put it simply, the annual report is the formal account of the previous year's financial operations and activities. It is published after the institution's fiscal end of the year and issued to shareholders. Such reports do not only have to meet accounting standards which are acceptable, they must hold information required under provincial securities legislation or federal or provincial Corporation laws. Besides that, shareholders must receive them within a specified period of time.

The names of directors and details of remuneration for officers and directors, including details of their share purchase plans are shown in annual reports; a list of investments in other corporations completely or owned in part by the company; details of long-term debts; and information on lawsuits the company might be facing.

The Balance Sheet
The balance sheet shows the financial picture of the company at a specific date, most of the time the closing day of the company's financial year. Included are the corporation's assets, liabilities and shareholders' equity.

On one side of the balance sheet, the left in Canada and the United States, are listed the assets of a company. Assets are anything that the company owns or has owing to  it.  They include current assets, such as short-term securities, cash, accounts receivable, inventories and prepaid taxes, and fixed assets, such as buildings, factories, equipment and machinery.

Take note that fixed assets are at times referred to as "property, plant and equipment." The usual method for valuation of these determined assets is the cost minus the depreciation accumulated by the date of the balance sheet. Accountants regard depreciation as the decline in useful value of a determined asset due to wear and tear from use over time.

The other side of the balance sheet shows liabilities and equity of shareholders, or the net worth of the company, which represents the interest of the shareholders.

Liabilities are what the company owes others or, to be specific more, all debts that fall due in the coming year and beyond. Included here are current liabilities, such as income tax payable, accounts payable and the amount of long-term debt paid off in that year, and long-term liabilities, which are debts due after one year from the date of the financial report.

Long-term liabilities do not only include long-term debts, but also deferred income taxes. This is income tax that would otherwise be payable, but which is deferred by using certain deductions which are provided by the government. Any tax writeoffs in the early years of investment are useful to reduce what the company would otherwise owe in current taxes.

The equity of shareholders is the total equity interest that all stockholders have in the company. On the balance sheet, liabilities are subtracted from assets, and what remains is shareholders' equity or ownership in the company. In this way, assets always equal liabilities plus shareholders' equity. For legal and accounting reasons, it is usually separated into three categories:

• Capital stock, which are the shares representing ownership of the business, including preferred and common;
• Retained earnings, which are the after-tax profits over the life of the company after all expenses and dividends have been paid out;
• Contributed surplus (sometimes called capital surplus), which is the quantity raised by the sale of shares in excess of the par or market value of each share.

The balance sheet does not show how much income a company took in during the year. Nor does the balance sheet show the expenses incurred, how much profit was earned or loss incurred. This information is provided in the earnings statement.