The income statement, balance sheet and cash flow statement, then P/E and discounted cash flow: work out what a company is really worth.
For: learners who want to move from trading prices to buying businesses, and learn to read financial statements and value companies
This course uses ideas from the courses below (optional; you can start right away).
Start from revenue and peel away costs, expenses, interest and taxes layer by layer. What's left at the end is net income.
Everything a company owns (assets) = what it owes others (liabilities) + what belongs to shareholders (equity). This equation always holds.
Profitable on paper but no cash in the bank? That happens when goods are sold but the money hasn't been collected. The cash flow statement shows where the money really went.
Share price ÷ earnings per share = P/E ratio: how much you're willing to pay for each $1 of annual profit. A high P/E is buying expectations of growth.
What's a company worth? Take all the free cash flow it will generate in the future, translate it back into today's money, and add it up.
The moment inflation, jobs or interest rate decisions are released, stocks, bonds and currencies often swing hard together. What matters isn't whether the data is good or bad, but how far it is from expectations.
Three companies can all have a 15% ROE: one through high margins, one by selling fast, one by borrowing. DuPont analysis splits ROE into three parts to show how a company makes money and the risks behind it.
P/B shows how much you pay for each $1 of net assets; dividend yield shows how much cash you get back each year. Read both alongside ROE and the payout ratio so you don't fall into a "cheap" trap.