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04/19/23STOCK ANALYSIS 101
Who are we?
• Student-led investing group on campus
• Manage $140k portfolio of mostly stocks
• Focus on teaching students investing through hands-on valuation
• Meetings MW 5:15-6:15PM Wallenberg 120
04/19/23STOCK ANALYSIS 101
Training Session Plan
• Goal: Although you are in a trading competition, you need to build your fundamental investing skills before your technical skills
• Session 1: Stock analysis basics• Session 2: Ratio analysis• Session 3: Technical analysis
04/19/23STOCK ANALYSIS 101
Key Takeaways
• How do I research a stock?• What qualitative factors do I need to
consider?• What quantitative factors do I need
to consider?
04/19/23STOCK ANALYSIS 101
How do I research a stock?
• Start with the Annual Report (10K)• Google Finance, Yahoo! Finance, Wall
Street Journal• Investopedia • Let’s now show you how to navigate
these resources
04/19/23STOCK ANALYSIS 101
How do I pick a good stock?
• Fundamental Analysis– Qualitative Questions– Quantitative Questions / Financial
Statements
• Technical Analysis– Charts, graphs– Recent News
04/19/23STOCK ANALYSIS 101
Qualitative Questions
– Does the company have significant competitive advantages/barriers of entry?
– How has the company performed historically?
– What risks are involved in investing in the company?
– How much debt does the company carry?– Are they making lots of money?– Where does the company’s money go?
04/19/23STOCK ANALYSIS 101
Qualitative Factors
• Business Model – How does the company make money?
• Competitive Advantages – What makes the company unique? Barriers of entry?
• Risk Factors• Management
04/19/23STOCK ANALYSIS 101
Quantitative Analysis
• Part I: What do the financial statements say?
• Part II: What do its financial ratios say?• Part III: How can charts & technical
analysis help me trade better?• Part IV (Advanced): How much is this
company truly worth? • Note: Today we will only be focused on
Part I.
04/19/23STOCK ANALYSIS 101
Financial Statements
• On Google Finance or Annual Report (10K)
• Three Main Statements– Income Statement– Cash Flow Statement– Balance Sheet
04/19/23STOCK ANALYSIS 101
Income Statement
BASIC FORMRevenues / SalesLess: Expenses
------Net Income
DETAILED FORMRevenues / SalesLess: Cost of Goods Sold------
Gross ProfitLess: Sales, General, AdministrativeLess: Utilities, Salary, Rent & Other Expenses------
Operating IncomeLess: Interest Payments on DebtLess: Tax Payments------
Net Income
04/19/23STOCK ANALYSIS 101
Cash Flow Statement
BASIC FORMAdd: Cash Flow from Operations
Add: Cash Flow from Investing
Add: Cash Flow from Financing
Beginning Balance CashAdd: Increase / Decrease in CashEnding Balance Cash
04/19/23STOCK ANALYSIS 101
DETAILED FORMCash Flow From OperationsAdd: Net IncomeAdd: Depreciation & AmortizationAdd: Increases in LiabilitiesLess: Increases in Assets
Cash Flow From InvestingPurchase of Property, Plant, EquipmentSale of Property, Plant, Equipment
Cash Flow From FinancingAdd: Issuance of StockAdd: Issuance of DebtLess: Dividend Payments
Beginning Balance CashAdd: Increase / Decrease in CashEnding Balance Cash
04/19/23STOCK ANALYSIS 101
Balance SheetBASIC EQUATIONASSETS = LIABILITIES + SHAREHOLDER EQUITY
DETAILED FORMAssetsCashAccounts ReceivableInventory
LiabilitiesDebtAccounts Payable
Shareholder EquityCommon StockRetained Earnings
04/19/23STOCK ANALYSIS 101
Now what do I do?
• Run through company’s statements line by line and figure out:– What are the trends?– Why are there such trends?
• Income Statement Questions– Has the company consistently been turning a
profit?– What are its sources of revenue / expenses?
• Cash Flow Statement Questions– Has the company consistently been making
cash? • Balance Sheet Questions
– Does it have enough assets to cover its debts?
04/19/23STOCK ANALYSIS 101
Why are these useful?
• Foundation for understanding how much a company is worth
• Used for ratio analysis and other “fair value” analysis
• Not used for technical analysis
04/19/23STOCK ANALYSIS 101
Key Takeaways
• How do I research a stock?– Annual Report, Google Finance, Investopedia
• What are qualitative factors I need to consider?– Business Model, Competitive Advantage,
Growth
• What are quantitative factors I need to consider?– Financial Statement Trends