How do I read a company's financials information before buying shares?

Question

Assuming that I find an attractive stock with potential to go up (based on past performance), how do I read that company's financial information (ie. cash flow, debt, assets, dividends) to decide if the company's doing well? For example, I've read several times that X company is a good buy because the price/share is low but they have X million in cash and very little debt.
I usually go to Yahoo Finance for any company stock information. How can I read the Financial section and interpret all that stuff?

Thanks.

Answer 1

here is what i often look in the company's financial statement:

-Liquidity Ratio
the ability of a company to meet its short term obligations. This ratio is important to short term creditors and bondholders.

-Activity or Efficiency Ratio
reflects the intensity of a company’s resource utilization or how efficient management team uses its assets or capital to generate sales.

-Gearing or Leverage Ratio
measure the debt-equity relation in a company’s capital structure or the extent to which the company has made use of financial leverage.

-Profitability Ratio
measure of operating effectiveness and can be classified into two categories; profit margin and rate of return.

Answer 2

- You have to compare historical shares prices between industry average and with other related companies (check it for last 5 or 10 years)
- Look for financial statement and see how the company is using the money, for example, is the firm using major of the resources for doing investments or for paying debts? (cash flow tells it).
- How are composed the assets of the company. Creating value (long term index - then preferable) or increasing utilities (short term index - then not so important).
- Consider how dividend politic works for the company (look for historical statistics).
- Read the entire prospectus with a critical eye.
- Yahoo Finance is easy to use and displays good information, but I think bloomberg.com has better technical analisys for making decisions.

Hope this help you. Good luck!

Answer 3

With a large grain of salt, I believe. The only source for financial information on a company is from the company itself. Everyone else that offers you some heard it from the company. Every number came from the company's front office. There is no other independent source.

Why care? Does this mean that the information is not true? Well it wasn't for ENRON, was it. And FNMA never really answered as to why their books were cooked.

I trust the tape.

Answer 4

I like Yahoo finance because you can enter the ticker symbol for the quote and great links come up .

The key stats link has their debt , revenue , YOY growth etc .

Here for example is RIMM

http://finance.yahoo.com/q/ks?s=RIMM

The profile link explains the basic function of the company and there is even a competitors link to see how the competition is doing !

For dividends , click on historical prices then option the dividends only .
Caution , Canadian dividends are just given numerically without the CDN designation so if the company is in Canada ( like PWE or ERF ) , figure the dividend data is in Canadian money .

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Answer 5

Ask for a prospectus.

Answer 6

Ask for a prospectus.

Answer 7

check this link its useful


http://phaturl.com/28

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