Market Dynamics
Stock prices are influenced by buyer and seller actions.
Companies must release financial reports regularly (8K for quarterly updates, 10K for annual reports).
Strong financial performance generally drives stock prices up, while poor performance drives prices down.
Perception
Perception can be a major driving force behind stock prices.
Example: Budweiser's share price plummeted not due to operational changes but due to public perception.
Indicates that stock prices can be affected as much by public sentiment as by financial performance.
Income Statement
Contains revenues and expenses.
Provides a simplified view of a company's performance over a specific period.
Statement of Shareholders' Equity
Reflects changes in share prices over time including dividends.
Shows how equity has changed for shareholders between periods.
Cash Flow Statement
Focuses on cash inflows and outflows, differentiating it from the income statement.
Cash flow indicates liquidity based on actual cash transactions as opposed to accounting statements that may include non-cash items.
Critical for assessing how successfully a business manages cash.
Intra-Company Analysis
Compares performance across various departments within the same company (e.g., comparing Macy's different departments).
Competitor Analysis
Evaluates performance against direct market competitors (e.g., HEB vs. Kroger).
Industry-Wide Analysis
Considers industry benchmarks and comparisons (e.g., sections similar to HEB looking at other stores like Walmart).
Guidelines Analysis
Relies on the external legal framework (i.e., FDA for grocery stores) to ensure companies adhere to necessary regulations.
Horizontal Analysis
Involves comparison of financial data across different time periods.
Useful for identifying trends and assessing performance over fiscal years.
Dollar Change Calculation: Subtraction of current year figure from previous year.
Percent Change Calculation: (Dollar Change / Base Amount) x 100.
Vertical Analysis
Compares line items within the same year as a percentage of a base figure (e.g., total assets or total revenues).
Common size analysis: Expressing each line item as a percentage of total assets or total revenues to gauge relative size.
Ratio Analysis
Liquidity Ratios: Measures the ability to meet short-term obligations.
Current Ratio: Current Assets / Current Liabilities.
Accounts Receivable Turnover: Sales / Average Accounts Receivable.
Inventory Turnover: Cost of Goods Sold / Average Inventory.
Total Asset Turnover: Sales / Total Assets.
Solvency Ratios: Assesses the ability to meet long-term obligations.
Debt Ratio: Total Liabilities / Total Assets.
Equity Ratio: Total Equity / Total Assets.
Debt-to-Equity Ratio: Total Liabilities / Total Equity.
Times Interest Earned: EBIT / Interest Expense.
Profitability Ratios: Measures the ability to generate profit relative to sales, assets, or equity.