Investing 101: Reading a Financial Analysis Report

By on June 4, 2018

To understand and value a business, an investor need to do an analysis of the company’s financial position. If you are interested in investing in a particular company, pull their financial analysis report to get a clear picture of the valuation of all their significant assets, any liabilities or debts on the books, available equity or liquid assets. An analysis of these number will give you a decent idea of the business’ financial position and potential return on investment (ROI).

Researching a company and putting an analysis down in writing can be instrumental in making sure as you have reviewed all the indicators of growth necessary to develop an investment strategy. There are steps that can be followed to get a deeper understanding of the typical indicators and numbers found on a financial analysis report.

Financial analysis is something of an art form. Experienced fund managers, individual investors and market analysts develop a databank of information over time which they bring to bear each time they review a company. In order to do a thorough job, you must understand something about the company’s business and strategies, and consider financial position in relation to market value.

Pick a business you are interested in investing with and acquire the company’s financial statements for the past several years. These may be found in a recent annual report or the company’s 10 K filing on with the SEC’s database. As a minimum, get the following statements, for at least 3 to 5 years:

  • Balance sheets
  • Income statements
  • Shareholders equity statements
  • Cash flow statements
  • Annual SEC reports

Reading a Financial Analysis Report

Below is an overview of the basic information to consider when reading a financial analysis report on a company.

The Company Overview

A report should start with a description of the business in order to help investors understand the company, its industry, its goals, its business culture and any edge it might have over its competitors. These factors can prove invaluable in helping to explain why a company might be a profitable investment or not.

Each business has an annual report submitted to the Securities & Exchange Commission (SEC); the 10 K or quarterly 10 Q provides an ideal starting point for important details. These reports contain valuable details can be obtained from industry trade journals, reports from key rivals and other analyst reports.

Investment Thesis

The motivation for a bullish or bearish stance on a company is uncovered in this section. It can come at the top of a report and include parts of a company overview, but regardless of its position in an analysis should cover the key investment positives and negatives.

A fundamental analysis, which can also be its own section, can be included here and contain research on the firm’s financial statements, such as sales and profit growth trends, cash flow generation strength, debt levels and overall liquidity, and how this compares to the competition.

The Balance Sheet

A business’ financial position is defined by its assets and liabilities. It also includes shareholder equity. All this information is presented to shareholders in the balance sheet.

Current Assets and Liabilities

Assets and liabilities are broken into current and non-current items. Current assets or liabilities are those which affect the books for less than 12 months. Current liabilities are the obligations the company has to pay within the coming year, and include existing obligations to suppliers, employees, in taxes and lenders.


The most important part of any financial analysis is to come to an independent value for the stock and compare this to the market price. There are three primary valuation techniques: The first is generally referred to as a discounted cash flow analysis, is a technique used to estimate a company’s future cash flows and discount them back to the future at an estimated discount rate.

The second is called relative value where the fundamental metrics and valuation ratios (price to sales, price to earnings, P/E to growth, etc.) are compared to market competitors.

Another comparison analysis is to look at what how much it cost an investor to buy out  a competitor or the price paid for an acquisition.  This third and last technique looks at a business’ book value and trys to estimate what a company might be worth if broken up or liquidated. If we subtract total liabilities from assets, we are left with shareholder equity. A book value analysis is especially insightful for financial stocks.

Key Risks

When reviewing financial statements it is important to detail key factors that might derail profits and long-term growth. The loss of patent protection for a key industry product developed by a technology company is a great example of a factor that can weigh heavily on the valuation for its underlying stock.

Other considerations include the industry in which the firm operates. For example, the technology industry is marked by short product life cycles, which can make it hard for a firm to keep its edge following a successful product release. Basically, anything important that can impact the future value of a stock should exist somewhere within the report.

Read Financial Analysis Reports with the Help of a Trusted and Experienced Fund Manager, Stockbroker or Financial Advisor

The financial position of a business on paper tells investors about its general well-being and potential for generating a ROI. Before purchasing stock in a business, understand and value the company properly.

Review financial analysis reports with your trusted financial planners and stock brokers who can provide you with in-depth knowledge and understanding of key numbers and indicators.

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About Harold Goldman

I am the founder of, and a Retirement Planning and Long-Term Care specialist. I am also the President of Emes Insurance Services, Inc., a Murrieta based insurance agency designed to help people with Retirement Planning and funding for College. I believe in educating my clients to become financially competent in an effort to develop plans for guaranteed income, protection against loss and tax-advantaged growth. To contact me Call (844)-376-2265

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