Info
- Determine a stocks intrinsic value based on it’s intrinsic factors
Company filings
- Public companies are required to file regular reports with the Securities and Exchange Commission (SEC)
- Form 10-K (Annual Report)
- Form 10-Q (Quarterly Report)
- Form 8-K (current events report)
Income Statement
- Shows revenue, expenses and profit
Balance Sheet
- Shows assets, liabilities and shareholders’ equity
Shareholder’s Equity
- is a “company’s net worth”, calculated as
total assets - total liabilities, representing the amount that would be distributed to the shareholders if the company were to be liquidated
Liabilities
- Company’s financial obligations and debts owed to others
- e.g. loans, mortgages, and unpaid bills
- Three types
- Current liabilities
- short-term obligations (settled within 1 year)
- e.g. accounts payable
- Non-current liabilities
- financial obligations due after one year
- e.g. long-term loans, mortgages
- Contingent liabilities
- potential obligations that depend on the outcome of a future event
- e.g. pending lawsuit
- Current liabilities
Warning
liabilities is not the same as expenses
- expenses are the costs of running the business
Statement of Cash Flow
- Shows cash from operations, cash from investing and cash rom financing
Financial Ratios
Key Financial Ratios to look out for
Profitability
- Gross profit margin
- Operating profit margin
- Net profit margin
- Return on assets (ROA)
- Return on equity (ROE)
Liquidity
A higher ratio suggests that the company has enough liquidity to cover its near-term liabilities
- Current ratio
- Quick Ratio
Solvency
Measure a company’s ability to meet its long-term debt obligations. Lower ratios means that company is more financially stable.
- Debt-to-assets ratio
- Interest coverage ratio
Efficiency
Measures how effectively a company manages its assets to generate sales.
- Asset turnover ratio
- inventory turnover ratio
Valuation
- P/E
- Price-to-book (P/B) ratio
- Price-to-Sales (P/S) ratio
- Dividend yield