Chapter 6

Chapter 6: Fundamental Analysis – Understanding Earnings and Cash Flow

Fundamental analysis is the process of evaluating the worthiness of a stock by looking at its basic reason for being—is it making money now and how likely will it be to continue making money in the future? Fundamental analysis looks at a company’s financial statements and evaluates other attributes like:
  • Quarterly and annual revenues, profits, and trends
  • Profit margins, return on equity, debt ratios and other financial analysis
  • The ability of the company to generate a positive cash flow
  • Earnings estimates for future quarters and years
  • The company’s current products and its products under development
  • The history and leadership of company management
  • The company’s strengths and weaknesses versus its competitors
You no doubt understand that a company’s earnings and cash flow results are important to a stock’s value and ultimately your decision to buy or sell a security. This chapter will show you where to find the data you need, give you the “tools” necessary to understand and analyze the information, and make solid investment decisions. This lesson will help you better understand the categories of data you will uncover and ways to use this information. You will no longer be afraid of income statements, balance sheets, and cash flow statements.
6-01 Information: 10-Ks, 10-Qs, and 8-Ks
6-02 The Income Statement-An Introduction
6-03 Operating Income, EBITDA and Net Income
6-04 Understanding Cash Flow Statements
6-05 EPS, PE Ratios, Cash Flow per Share and ROE
6-06 Revenue and Earnings Estimates
6-07 Balance Sheet
6-08 Management
6-09 New and Improved Products?
6-10 Competition
6-11 Chapter 6 Exam