Forum > What to look for in Finanical reports
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zeejay

Member since: Jun 08

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Greetings, i'm a newbie and 've been trying to understand what to look for in a financial report that gives you an idea whether to buy or not to buy the stock. 

 

Thanks,

 

ZJ 

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Saint

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I just recently bought this book for $9 at Amazon.  So far its been pretty good..  "Fire Your Stock Analyst: Analyzing Stocks On Your Own (Definitive Guides (Financial Times/Prentice Hall))"

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zeejay

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thank you very much i will take a look at it....

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uiucfinance

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Assuming you are not looking to create full out discounted cash flow models, I have a few things to take a look at:

-Metrics:  Metrics are way of putting pieces of information into comparitive ratios.  For instance, Price/Earnings is the most used and quoted metric.  Price/Earnings can be used to compare companies across various industries.  However, this practice is comparing apples to Buicks (the comparison is not valid because of the difference in companies).  To get a better view of a company comparitively, other metrics have developed for specific sector/industry.  For instance, in the cable industry Sales/Suscribers, or the retail busines, Same Sales Store Growth (Sales for existing stores this quarter/sales for existing stores corresponding quarters)  I'm sure if you googled metrics you can find a variety of them for the companies you are interested in.

-Footnotes: It is important to read all the fine print in a company's financial statement.  You are unlikely to find a hidden gem that the company is going to go gangbusters, but rather you may find some questionable accounting practices (research and development expenses is especially cause for concern).

-Future expectations:  What is management expecting for the future of the company, and has the management in the past been good to their word in achieving these goals.  (Management that can consistently reach their goals are rewarded with a premium for earningings consistency.  However, if the company has a on quarter hiccup in this situation, be sure the stock will take a beating.)

 

If you are purely looking at financial statements, you should read books on fundamental analysis.

 

Damodaran - Damodaran on Valuation

Benjamin Grahm - The Intelligent Investor

 

Are some that I have read, and liked.

 

Hope this helps.

 

Cheers-

(Pardon my spelling)