Many financial experts talk about Financial ratios, Top line growth, Bottom line growth, Balance Sheet, Profit and Loss, Cash Flow and many other words which may be intimidating to understand.
By reading this fundamental analysis series you will perfect all tools of fundamental analysis. I have heard people saying ‘Fundamental analysis is a daunting task and I have no background in accounting or finance’.
But this is not true, fundamental analysis requires no background of accounting. Besides accounting and finance are the tools for financial freedom, but our schools never teach us, they kept us away from it. So, no matter what background you hold, we all need financial freedom.
Before moving to analyses of financial statements it is important you watch the management. Remember, quality management can run any company successfully but a bad management can run good company at risk.
Is management rational with allocating the cash in expanding or making acquisitions one after the other. Good company always focus one product (Microsoft), but there can be similar by-product (Apple).
Good management returns shareholders fund in dividends or bonus of idle cash is available. Always focus to repay debt and reinvest internally to produce above average returns.
Secondly, honesty. Honest management accept the mistake and provide transparency. To know whether the management is honest you need to see promises made by companies in the annual reports back of 4 years and did they act on it.
Lastly, good management always do things which are right and in the interest of shareholders. They do not follow others trend at any condition.
Above Analysis is based on Consolidated Statement. I am neither an investment adviser nor a stockbroker to provide recommendations and none of my answers is to be construed as buy/sell recommendations. All I am doing is, showing the facts of company, which cannot be seen through charts and news.