Charles R. Blyth FundStanford’s Premier Investing Group

STOCK ANALYSIS 101

04/19/23STOCK ANALYSIS 101

Who are we?

• Student-led investing group on campus

• Manage $140k portfolio of mostly stocks

• Focus on teaching students investing through hands-on valuation

• Meetings MW 5:15-6:15PM Wallenberg 120

04/19/23STOCK ANALYSIS 101

Training Session Plan

• Goal: Although you are in a trading competition, you need to build your fundamental investing skills before your technical skills

• Session 1: Stock analysis basics• Session 2: Ratio analysis• Session 3: Technical analysis

04/19/23STOCK ANALYSIS 101

Key Takeaways

• How do I research a stock?• What qualitative factors do I need to

consider?• What quantitative factors do I need

to consider?

How do I research a stock?

04/19/23STOCK ANALYSIS 101

How do I research a stock?

• Start with the Annual Report (10K)• Google Finance, Yahoo! Finance, Wall

Street Journal• Investopedia • Let’s now show you how to navigate

these resources

04/19/23STOCK ANALYSIS 101

How do I pick a good stock?

• Fundamental Analysis– Qualitative Questions– Quantitative Questions / Financial

Statements

• Technical Analysis– Charts, graphs– Recent News

What qualitative factors do I need to consider?

04/19/23STOCK ANALYSIS 101

Qualitative Questions

– Does the company have significant competitive advantages/barriers of entry?

– How has the company performed historically?

– What risks are involved in investing in the company?

– How much debt does the company carry?– Are they making lots of money?– Where does the company’s money go?

04/19/23STOCK ANALYSIS 101

Qualitative Factors

• Business Model – How does the company make money?

• Competitive Advantages – What makes the company unique? Barriers of entry?

• Risk Factors• Management

What quantitative factors do I need to consider?

04/19/23STOCK ANALYSIS 101

Quantitative Analysis

• Part I: What do the financial statements say?

• Part II: What do its financial ratios say?• Part III: How can charts & technical

analysis help me trade better?• Part IV (Advanced): How much is this

company truly worth? • Note: Today we will only be focused on

Part I.

04/19/23STOCK ANALYSIS 101

Financial Statements

• On Google Finance or Annual Report (10K)

• Three Main Statements– Income Statement– Cash Flow Statement– Balance Sheet

04/19/23STOCK ANALYSIS 101

Income Statement

BASIC FORMRevenues / SalesLess: Expenses

------Net Income

DETAILED FORMRevenues / SalesLess: Cost of Goods Sold------

Gross ProfitLess: Sales, General, AdministrativeLess: Utilities, Salary, Rent & Other Expenses------

Operating IncomeLess: Interest Payments on DebtLess: Tax Payments------

Net Income

04/19/23STOCK ANALYSIS 101

Cash Flow Statement

BASIC FORMAdd: Cash Flow from Operations

Add: Cash Flow from Investing

Add: Cash Flow from Financing

Beginning Balance CashAdd: Increase / Decrease in CashEnding Balance Cash

04/19/23STOCK ANALYSIS 101

DETAILED FORMCash Flow From OperationsAdd: Net IncomeAdd: Depreciation & AmortizationAdd: Increases in LiabilitiesLess: Increases in Assets

Cash Flow From InvestingPurchase of Property, Plant, EquipmentSale of Property, Plant, Equipment

Cash Flow From FinancingAdd: Issuance of StockAdd: Issuance of DebtLess: Dividend Payments

Beginning Balance CashAdd: Increase / Decrease in CashEnding Balance Cash

04/19/23STOCK ANALYSIS 101

Balance SheetBASIC EQUATIONASSETS = LIABILITIES + SHAREHOLDER EQUITY

DETAILED FORMAssetsCashAccounts ReceivableInventory

LiabilitiesDebtAccounts Payable

Shareholder EquityCommon StockRetained Earnings

04/19/23STOCK ANALYSIS 101

Now what do I do?

• Run through company’s statements line by line and figure out:– What are the trends?– Why are there such trends?

• Income Statement Questions– Has the company consistently been turning a

profit?– What are its sources of revenue / expenses?

• Cash Flow Statement Questions– Has the company consistently been making

cash? • Balance Sheet Questions

– Does it have enough assets to cover its debts?

04/19/23STOCK ANALYSIS 101

Why are these useful?

• Foundation for understanding how much a company is worth

• Used for ratio analysis and other “fair value” analysis

• Not used for technical analysis

04/19/23STOCK ANALYSIS 101

Key Takeaways

• How do I research a stock?– Annual Report, Google Finance, Investopedia

• What are qualitative factors I need to consider?– Business Model, Competitive Advantage,

Growth

• What are quantitative factors I need to consider?– Financial Statement Trends

04/19/23STOCK ANALYSIS 101

Action Items

• Pick a company that you like in an industry that you’re interested in

• Read the company’s Annual Report (10K)

• Look through the company’s financial statements on Google Finance and see if you can identify trends