Understanding Company Fundamentals

Fundamental analysis helps you find quality companies at fair prices.

Key Financial Statements


Income Statement

• Revenue: Total sales
• Gross Profit: Revenue minus cost of goods
• Operating Income: After operating expenses
• Net Income: Bottom line profit

Balance Sheet

• Assets: What company owns
• Liabilities: What company owes
• Equity: Assets minus liabilities
• Snapshot of financial health

Cash Flow Statement

• Operating Cash Flow: From business
• Investing Cash Flow: Capital expenditure
• Financing Cash Flow: Debt and equity
• Cash is king

Essential Ratios

Valuation Ratios

• P/E Ratio: Price / Earnings per share
• P/S Ratio: Price / Revenue per share
• P/B Ratio: Price / Book value
• PEG Ratio: P/E / Growth rate

Profitability Ratios

• Profit Margin: Net income / Revenue
• ROE: Return on Equity
• ROA: Return on Assets
• ROIC: Return on Invested Capital

Health Ratios

• Debt/Equity: Financial leverage
• Current Ratio: Short-term liquidity
• Free Cash Flow: Cash after capex

What to Look For

Strong Company Signs

• Growing revenue consistently
• Expanding margins
• Strong cash flow
• Manageable debt
• Competitive moat

Warning Signs

• Declining revenue
• Negative cash flow
• Rising debt levels
• Frequent share dilution
• Insider selling

Where to Find Data

• SEC filings (10-K, 10-Q)
• Yahoo Finance, Google Finance
• Company investor relations page
• Financial data providers

Key Takeaways

1. Revenue growth is most important
2. Cash flow matters more than earnings
3. Compare ratios to industry peers
4. Look at trends, not single quarters
5. Combine with technical analysis for timing