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Investing Basics: Fundamental Analysis




New investors often ask, “How do I know which stocks to buy?” Don’t just guess—learn how investors can use financial statements …

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20 thoughts on “Investing Basics: Fundamental Analysis”

  5. Just to clarify: Shareholder equity is NOT what equity holders would receive if the company sold all its assets and paid of all its debts – because asset are valued in the balance sheet on a going concern basis. If you wanted to know what would be left after closing down the company you would have do make a separate liquidation balance sheet.

  14. A quick summary that I wrote down:

    Fundamental analysis – process of analyzing a company's financial statements to help decide if you want to invest

    -Balance sheets

    -Income statements

    -Cash flow statements

    A balance sheet compares a company's assets to its liability's and the shareholders equity.

    -assets = items a company owns

    -Liabilities = debts or accounts that need to be payed (often have offsetting assets)

    -shareholders equity = book value = amount of money left to shareholders if company shuts down.

    – assets – liabilities = shareholders equity

    A balance sheet can help you determine if a company is overextending and isn't a worthwhile investment.

    Income statement = how a company earns money

    Income statement shows revenues and expenses

    Revenues – Expenses = Net Income

    A company with a good cash position is better suited to endure economic ups and downs

    A cash flow statement shows how a company uses its cash to operate its business, as well as showing a company's loans

    P/E ratio = share price / earnings per share

    P/E ratio allows you to look further then the value of the stock

    the lower the P/E ratio, the better the value

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