It’s essential to consider them in conjunction with each other to gain a comprehensive understanding of the company’s financial health, operational efficiency, and growth prospects.
- Balance Sheet:
- Provides a snapshot of a company’s financial position at a specific point in time.
- Includes assets (such as cash, accounts receivable, inventory), liabilities (such as accounts payable, loans), and shareholders’ equity.
- Analyze trends in assets and liabilities to assess liquidity, solvency, and financial stability.
- Profit and Loss (P&L) Statement:
- Also known as the income statement.
- Summarizes a company’s revenues, expenses, and net income over a specific period.
- Analyze revenue growth trends, cost management efficiency, and profitability margins.
- Cash Flow Statement:
- Shows how cash is generated and used by a company over a specific period.
- Includes operating cash flow, investing cash flow, and financing cash flow.
- Analyze the company’s ability to generate cash, manage liquidity, and fund operations, investments, and debt repayments.
- Ratios:
- PE Ratio < 15: Compares the company’s current share price to its earnings per share (EPS). A lower PE ratio may indicate that the stock is undervalued relative to its earnings.
- PB Ratio < 1 (for Financial Institutions): Compares the company’s market price per share to its book value per share. A PB ratio below 1 may indicate that the stock is undervalued relative to its assets.
- ROE (Return on Equity): Measures the company’s profitability relative to shareholders’ equity. Analyze trends in ROE and compare them to industry benchmarks.
- Profit Margin: Measures the company’s profitability by calculating net income as a percentage of revenue.
- Debt Equity Ratio: Compares a company’s total debt to its shareholders’ equity. A lower debt-equity ratio indicates lower financial risk.
- Current Ratio > 1: Compares a company’s current assets to its current liabilities. A current ratio above 1 indicates that the company has more current assets than current liabilities, suggesting good liquidity.
- Intrinsic value : Refers to the perceived or calculated true worth of an asset, investment, or company. It’s often contrasted with market value, which is the price at which an asset or security trades in the open market. Here’s a breakdown of intrinsic value:
- Holding Percentage & Trend:
- Analyze the ownership structure of the company, including the percentage of shares held by insiders, institutional investors, and retail investors.
- Assess trends in ownership changes over time.
- Consider the implications of significant shifts in ownership for corporate governance and strategic decision-making.
- Future Projections:
- Based on industry trends, market analysis, company performance, and strategic plans.
- Use financial modeling techniques to forecast future revenue, expenses, and cash flows.
- Consider potential risks and uncertainties that could impact future performance
Conclusion
By considering these additional factors alongside the financial statements and ratios, you can develop a more holistic understanding of the company’s overall performance, governance practices, and future prospects.