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Understanding Financial Statements for Stock Investment Success

Investing in stocks requires a solid understanding of financial statements. Key documents like the Balance Sheet, Income Statement, and Cash Flow Statement provide insight into a company's profitability and financial health. Look for strong cash reserves, manageable debt levels, and consistent revenue growth. Quarterly updates and annual reports from publicly traded companies offer essential data for informed investing. Utilize financial websites and company reports to gauge their performance and sustainability. Dedicate time weekly to enhance your understanding of the businesses you invest in.

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Understanding Financial Statements for Stock Investment Success

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  1. Personal Finance Investing – Intro to financial statements

  2. When investing in stocks…. • …information is key!

  3. What information are we looking for? • Business 101 • Foundation of a great business is SUSTAINABLE PROFIT! • Successful companies EARN and SAVE • We are looking to see if a company has the ability to consistently make money and invest it wisely on behalf of shareholders • Where do we look for this information?

  4. Business Financial Statements • Publicly traded companies are required to release updates on their financial performance every quarter (90 days) & a full audited financial report every year. • These financial statements consist of: • Balance Sheet • Income Statement • Cash Flow Statement

  5. Balance Sheet • Measures what a company Owns (assets) and Owes (liabilities) on a given date. • What to look for on a Balance Sheet • Strong Cash (cash & cash equivalent) position • No excessive amounts of long-term debt • Easy to read and understand

  6. Balance Sheet: Intel • http://finance.yahoo.com/q/bs?s=INTC&annual • Note the large, steady amount of cash (and short term investments) and the consistently low long-term debt

  7. Income Statement • Tells us how much profit a company generates year in and year out • What a company spends and what they take in • What to look for on an income statement • Sales (also called revenue) that increase quarterly • Profits (also called net income) that increase quarterly • Because of sales, not because of lawsuit settlements and other various non-sale related items • Where are they spending their money? • Beware of cost increases.

  8. Income Statement: Intel • http://finance.yahoo.com/q/is?s=INTC&annual • Declining Sales & Profit from 2007 – 2009 • Why is this? • Continuing to fund research and development

  9. Cash Flow Statement • Exactly how much cash (dollar dollar bill, y’all) went into and out of the business • What we look for • Positive change in bottom line of cash flow statement (Change in Cash and Cash Equivalents) • Means more cash coming in than going out • If cash flow is negative • LOOK FOR A GOOD REASON WHY!

  10. Cash Flow Statement: Intel • http://finance.yahoo.com/q/cf?s=INTC&annual • Positive cash flow in 2007 • Strong Operating Cash Flow • Negative in 2005 & 2006…why? • Stock Buybacks • Capital Expenditures • Neither of these are necessarily bad

  11. Where do I get this great information? • It’s free and easy to find! • Financial Websites • Finance.yahoo.com (quick, easy to use) • Finance.google.com (quick, easy to use) • Cnbc.com • Government Websites • www.sec.gov (look for 10-Q and 10-K reports) • Company Website • Website of specific company • Get reports and listen to conference calls

  12. How much information should I get • For starters, as much as it takes to help you understand the business in and out • Then, spend at least 1 hour a week per company you own! • Look at the news relating to stock/industry/market • Research competitors • Read corporate press releases • Listen to company’s conference calls • Read company’s quarterly reports

  13. Is Intel a Good Company to Invest In? THE BAD THE GOOD

  14. Activity: Evaluating Financial Information • Click on the worksheet in Moodle and complete it using information from one of the financial websites discussed in class. • Submit the file to me when you are finished.

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