Introduction to Financial Statements and Fundamental Analysis
This topic discuss on how to evaluate a company's financial health and make informed investment decisions
Understanding Financial Statements
- Income Statement: Think of this as a company’s report card for a specific period, showing how much money it made (revenue), how much it spent (expenses), and what’s left over (profit).
- Balance Sheet: This is like a snapshot of a company’s financial health at a particular moment. It shows what the company owns (assets), what it owes (liabilities), and the value that belongs to the owners (shareholders’ equity).
- Cash Flow Statement: This shows where the company’s money is coming from and where it’s going. It breaks down the cash the company makes from its regular business, investments, and any borrowing or lending.
Key Financial Ratios
- Price-to-Earnings (P/E) Ratio: This tells you how much people are willing to pay for each dollar a company earns. A higher ratio might mean investors expect future growth.
- Return on Equity (ROE): This shows how well a company is using its money to make more money. A higher ROE usually means a company is doing a good job.
- Debt-to-Equity Ratio: This compares what a company owes to what it owns. A high ratio might mean the company is taking on a lot of debt, which could be risky.
Understanding Earnings Reports
- Companies release reports every few months to update everyone on how they’re doing. These reports tell us things like how much profit they made per share (EPS), whether their revenue is growing, and what they expect to happen next.
Fundamental Analysis
- Qualitative Analysis: This is about understanding the story behind a company—what it does, how it stands out from competitors, and how good its management team is.
- Quantitative Analysis: This involves looking at the numbers—like sales, profits, and debts—to figure out if the company is worth investing in.
Valuation Methods
- Discounted Cash Flow (DCF): This is a way to figure out how much a company is worth today based on how much money it’s expected to make in the future.
- Balance Sheet: This is like a snapshot of a company’s financial health at a particular moment. It shows what the company owns (assets), what it owes (liabilities), and the value that belongs to the owners (shareholders’ equity).
- Comparable Company Analysis: This method looks at similar companies to see how they’re valued, helping to determine if a company’s stock price is fair.