As BetterInvestors we know that a company is its management. The three most important things about a company are management, management, and management. You get the idea. Management makes a company great. We judge management's quality by examining its ability to efficiently grow the company by examining its results with the SSG. The SSG, reportedly, contains 80% of what you need to know about the company. Some people venture into that extra 20% that the SSG doesn't consider. This is the land of financial statment analysis with horizontal, vertical, and ratio analysis, and the humble proxy statement. At first this may seem mysterious, but we're already looking at a 10 year horizontal analysis of the income statement in the visual analysis of the SSG and doing ratio analysis in section 2A & 2B on the back page of the SSG. This extra 20% is a simple continuation of our evaluation of management's results begun with the SSG. Kaush Meisheri has a wonderful article on how we evaluate management's numbers on the SSG and he includes some that we don't currently look at like the "current ratio", a measurement of a company ability to come up with cash within a year or the "quick ratio", its ability to come up with cash, er... well, quickly! Click here to read this article. This is the first in a three part series and I recommend you look at those too as they'll discuss the influence of the company's quality on its P/E. Looking at this 20% as simply a continuation of what we already do makes it a lot less intimidating for me. Sources of Study
How to Profit from Reading Annual Reports by Richard B. Loth How to a Read Financial Report by John Tracy Click here for an article on Investor Relations by Mary Conger. Diane Graese is the BetterInvesting author on Financial statements. Click here to view her list of articles on the annual report, 10K, and financial statements. Merril Lynch's Guide to Annual Reports available by clicking here. Morningstar's Five Rules for Successful Stock Investing Chapters 4, The Language of Investing & Chapter 5, Financial Statements Explained. An Excel spreadsheet is available for your aid in understanding the financial statements. The Schneider - Hess Spreadsheet was developed by Paul Schneider and Dan Hess and is available for download by clicking here. Look for PaulAnnualReportMMDDYY.xls It has been placed in the public domain for BetterInvestors to use to their need for an easy method to analyze the financial statements of a company. Please read the "Help" file. It has the ability to follow many companies , each for a series of years on a single worksheet. This series of years is especially valuable because it allows you to look for a series of changes over a period of a few years in one of the metrics which might be good or it might be bad. It has the ability to highlight possible problem areas to draw your attention to them. It's a bit intimidating, but it has an amazing potential for financial statement analysis enlightenment. Comment on this Page Last Modified 2007-09-16 |
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