Understanding how to perform research on stocks is a big hurdle for new investors

Being a CPA and working for a Big 4 accounting firm allowed me to familiarize myself with Financial Statements and metrics

Let me help you perform your own research

"Researching Stocks"


"Balance Sheet"

The B/S is a great place to start because it will give you insight as to the health of the company

Here you will find:
- Assets the company owns
- Liabilities (Debt) the company owes
- Equity of the company

I always like to review the Debt section

- Is Debt ⏫or⏬
- If debt is growing is it being effected and creating growth from it

Different metrics you can look at include:
- Current Ratio = Current Assets/Current Liabilities

This ratio assess short-term cash availability

- Debt/Equity = Total Liabilities / Equity

Remember, Debt is OWED and Equity is OWNED

This ratio shows how much a company is dependent on Debt

Income Statement

Here is where you see how the company is performing. First check these areas

- Revenues
- Gross Margin %
- Operating Income
- Operating Margin %
- EBITDA (Earnings Before Interest Taxes Depreciation & Amortization)
- Net Income
- FFO (REIT related)

EBITDA is a GREAT metric to look at but can be manual to calculate

Once you look at & calculate the above items, you can look at some of these valuation metrics

P/E or P/FFO ratio (I always prefer using an adjusted EPS or FFO if available)
Return on Assets

Return on Assets can tell you how efficient a company is at producing profit from assets

When comparing similar companies, the valuation metrics above are great ways to do that. Similar companies in the same industry should not have MASSIVE differences if they are peers

Also compare these valuation metrics to the company's recent 5 year average. P/E and P/S 5yr averages are widely available online, the others may take some digging

'Cash Flow"

Here is the bread and butter F/S. How a company utilizes the cash they earn is all told through the CF Statement

One of the most important things to look at here is Operating CF and Free Cash Flow (FCF)

FCF - Operating CF - CapEx

FCF is the money a company generates through operations and the money they had to put in to support those operations (CAPEX)

If a company does not effectively generate cash flows how else will they be able to pay down debt and pay you that Dividend?

Key metric I commonly use from the CF is the P/FCF. Again, compare to a close peer, but also compare to recent 5yr avg.

Those are some of the metrics I use and you can begin to utilize when performing your DD

If you are looking for more help & education, take a look at my book on Dividend Investing ON SALE TODAY (see Pinned Tweet), or you can also sign up for my FREE newsletter https://dividendseeker.substack.com/ 
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