4. Fundamentals and earnings

Fundamentals and earnings

Read the statements, the ratios and earnings season.

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  • 3 sections
  • 13 lessons
  • 1 h 4 min
About this chapter

This chapter teaches you to read a company's numbers from scratch (the three statements, the ratios, the warning signs and the earnings season that updates them), with the pages that show each one.

What you will be able to do

  • Explain what the income statement, the balance sheet and the cash flow statement each answer, using one tiny company as the example.
  • Compute and read the common ratios: margins, ROE, P/E, EV/EBITDA, free cash flow yield, and say when each one misleads.
  • Read a list of red and green flags and check each one against its source.
  • Split revenue by segment and follow the operating numbers (KPIs) a company reports.
  • Turn today's price into the growth it assumes (reverse DCF).
  • Follow an earnings season: the calendar, the consensus, the surprise, the guidance, the call, the analysts' reaction.
  • Read dividends, splits, catalysts and merger deals.

How the chapter is built

  1. The statements: FA, DIAG, SEG, KPIS, RDCF
  2. Earnings: ERN, EVTS, EE, EM, GUIDE, GUID, CALLS, ANR
  3. Events and deals: DVD, EVT, CATL, MA

Five words to know before starting

revenue
all the money a company takes in from sales in a period
profit (net income)
what is left after every cost, interest and tax
fiscal year
the company's own 12-month accounting year; it need not end in December
quarter
a three-month period; US companies report every quarter
filing
an official document sent to the regulator (the SEC in the US) and made public
  1. Section 15 lessons · 27 minThe statements and the ratiosThree tables that describe a company, and the ratios built on them.
    1. 1.1The three financial statements (FA)5 min
    2. 1.2Ratios that matter (FA ratio tabs)6 min
    3. 1.3Red and green flags (DIAG)5 min
    4. 1.4Revenue by segment and company KPIs (SEG, KPIS)5 min
    5. 1.5What growth is priced in? (RDCF)5 min
  2. Section 25 lessons · 22 minEarnings seasonEstimates, results, guidance, calls and analyst ratings.
    1. 2.1The earnings calendar and implied moves (ERN, EVTS)5 min
    2. 2.2Estimates, surprises and revisions (EE, EM)4 min
    3. 2.3Guidance (GUID, GUIDE)4 min
    4. 2.4Earnings calls (CALLS)4 min
    5. 2.5Analyst ratings and price targets (ANR)4 min
  3. Section 33 lessons · 13 minEvents and dealsDividends, splits, catalysts and mergers between earnings reports.
    1. 3.1Dividends and corporate actions (DVD, EVT)4 min
    2. 3.2Catalysts (CATL)4 min
    3. 3.3Mergers and acquisitions (MA)4 min

Educational material about reading market data, not investment advice.