Fundamental Analysis For Dummies

Title Page
Copyright Page
Table of Contents
Introduction
About This Book
Icons Used in This Book
Beyond the Book
Where to Go from Here
Part 1 Getting Started with Fundamental Analysis
Chapter 1 Understanding Fundamental Analysis
Why Bother with Fundamental Analysis?
Some of the real values of fundamental analysis
Driving home an example
Putting fundamental analysis to work
Knowing what fundamentals to look for
Knowing what you need
Knowing the Tools of the Fundamental Analysis Trade
Staying focused on the bottom line
Sizing up what a company has to its name
Burn baby burn: Cash burn
Financial ratios: Your friend in making sense of a company
Making Fundamental Analysis Work For You
Using fundamentals as signals to buy or sell
The perils of ignoring the fundamentals
Using fundamental analysis as your guide
Chapter 2 Getting Up to Speed with Fundamental Analysis
What Is Fundamental Analysis?
Going beyond betting
Understanding how fundamental analysis works
Who can perform fundamental analysis?
Following the money using fundamentals
Comparing Fundamental Analysis with Other Ways of Picking Investments
How fundamental analysis stacks up against index investing
Comparing fundamental analysis with technical analysis
Putting Fundamental Analysis to Work For You
How difficult is fundamental analysis? Do I need to be math wizard?
Is fundamental analysis for you?
The risks of fundamental analysis
Making Money with Fundamental Analysis
Putting a price tag on a stock or bond
Being profitable by being a “contrarian”
The Fundamental Analysis Toolbox
Introducing the income statement
Balance-sheet basics
Getting the mojo of cash flows
Familiarizing yourself with financial ratios (including the P-E)
Chapter 3 Gaining an Upper Hand on Wall Street: Why Fundamental Analysis Gives Investors an Edge
Better Investing with Fundamentals
Picking stocks for fundamental reasons
Uses for the index investor
Assisting technical analysts
Dooming your portfolio by paying too much
Sitting through short-term volatility
Relying on the Basic Info the Pros Use
What is “the Warren Buffett Way”?
Checking in on Graham and Dodd
The origins of value investing
Using fundamentals to see when a stock is priced right
Figuring Out When to Buy or Sell a Stock
Looking beyond the per-share price
Seeing how a company’s fundamentals and its price may get out of alignment
Avoiding overhyped “story stocks”
Pairing buy-and-hold strategies with fundamental analysis
Looking to the long term
Patience isn’t always a virtue
Chapter 4 Getting Your Hands on Fundamental Data
Getting in Sync with the Fundamental Calendar
Which companies must report their financials to the public?
Kicking it all off: Earnings season
Getting the earnings press release
Bracing for the 10-Q
Running through the 10-K
Flipping through the annual report (if there is one)
There’s no proxy like the proxy statement
Getting up to Speed with the Basic Accounting and Math
Operating activities: Finding smooth operators
Investing activities: You have to spend money to make money
Financing activities: Getting in tune with high finance
Learning a key fundamental math skill: Percentage changes
How to Get the Fundamental Data You Need
Getting acquainted with the SEC’s database
Step-by-step directions on accessing company fundamentals using EDGAR
Pulling fundamental data from websites into spreadsheets
Finding stocks’ dividend histories
Getting stock-split information
Part 2 Performing Fundamental Analysis Yourself
Chapter 5 Analyzing a Company’s Profitability Using the Income Statement
Digging Deep Into the Income Statement
Taking in the Top Line: Revenue
Breaking down a company’s revenue
Keeping tabs on a company’s growth
What are the company’s costs?
Digging into costs
What is the company’s bottom line?
Calculating Profit Margins and Finding Out What They Mean
Differences between the types of profit margins
Gross profit margin
Operating profit
Net profit margin
Finding out about earnings per share
Comparing a Company’s Profit to Expectations
The importance of investors’ expectations
Comparing actual financial results with expectations
Chapter 6 Measuring a Company’s Staying Power with the Balance Sheet
Familiarizing Yourself With the Balance Sheet
Separating your assets from your liabilities
The most basic equation of business
Understanding the Parts of the Balance Sheet
Covering your bases with assets
Getting in touch with a company’s liabilities
Taking stock in a company’s equity
Analyzing the Balance Sheet
Sizing up the balance sheet with common-sizing
Looking for trends using index-number analysis
Appreciating working capital
Analyzing here and now: The current ratio
The Danger of Dilution
How stock can be watered down
Knowing how stock options can contribute to dilution
Soaking up extra shares with buybacks
Chapter 7 Tracking Cash with the Statement of Cash Flow
Looking at the Cash-Flow Statement As a Fundamental Analyst
Getting into the flow with cash flow
Breaking the cash-flow statement into its key parts
Examining a company’s cash flow from operations
Depreciation and amortization
Stock-based compensation expense
Tax adjustments (also called deferred income tax benefit)
Gains on divestitures
Asset impairments or losses on sales of discontinued operations
Accounts receivable
Accounts payable
Inventories
Other
Net cash provided by (used in) operating activities
Considering a company’s cash from investments
Getting into a company’s cash from financing activities
How Investors May Be Fooled by Earnings, But Not by Cash Flow
Understanding the Fundamentals of Free Cash Flow
Calculating free cash flow
Measuring a company’s cash-burn rate
Chapter 8 Using Financial Ratios to Pinpoint Investments
Using Financial Ratios to Find Out What’s Really Going on at a Company
Which financial ratios you should know and how to use them
Using ratios to grade management
Return on equity
Return on invested capital
Checking up on a company’s efficiency
Accounts receivable turnover
Inventory turnover
Accounts payable turnover
Evaluating companies’ financial condition
Debt to equity
Quick ratio
Interest coverage ratio
Getting a handle on a company’s valuation
Price-to-book ratio
Dividend yield
Dividend payout ratio
Earnings yield
Getting Familiar with the Price-to-Earnings Ratio
How to calculate the P-E
What a P-E tells you about a stock
Putting the P-E into Perspective
Taking the P-E to the next level: the PEG
Evaluating the P-E of the entire market
Chapter 9 Mining the Proxy Statement for Investment Clues
Getting up to Speed with What the Proxy Statement Is
Uncovering info in the proxy statement
Getting your hands on the proxy
Expanding Fundamental Analysis Beyond the Numbers
Appreciating corporate governance
Getting to know the board
Stepping Through the Proxy
Getting to know the board of directors
Analyzing the independence of board members
Delving into the board’s committees
Finding potential conflicts between the board and the company
Understanding how the board is paid
Auditing the auditor
Finding out about the other investors in a stock
How Much Are We Paying You? Understanding Executive Compensation
Figuring out how much executives earn
Checking out the other perks executives receive
Where the real money comes from: Options and restricted stock
Comparing CEO pay to employee pay
Checking In on Your Fellow Shareholders
Finding out who else owns the stock
What’s on other investors’ minds: Shareholder proposals
Part 3 Making Money with Fundamental Analysis
Chapter 10 Looking for Fundamental Reasons to Buy or Sell
Looking For Buy Signals from the Fundamentals
Finding companies that have staying power
Liquidity: Cash is king
Low debt loads
Stable cash flows
Looking for a company on the rise
Betting on the brains behind the operation
Minding the earnings yield
Knowing When to Bail out of a Stock
Breaking down some top reasons to say adios to a stock
Why selling stocks everyone else wants can be profitable
What Dividends Can Tell You about Buying or Selling a Stock
Calculating the dividend yield
Knowing if you’re going to get the dividend
Making sure the company can afford the dividend
Using dividends to put a price tag on a company
Chapter 11 Finding a Right Price for a Stock Using Discounted Cash Flow
How to Stop Guessing How Much a Company is Worth
How minding intrinsic value can help you
Getting up to speed for the discounted cash flow
A company’s cash flow
Understanding the time value of money
Performing a Discounted Cash Flow Analysis
Starting out with free cash flow
Getting the company’s shares outstanding
Estimating the company’s intermediate-term growth
Going way out: Forecasting long-term growth
Measuring the discount rate
Taking a cue from bond investors
Using the Capital Asset Pricing Model (CAPM)
Putting it all together
Forecasting the cash flows for the first five years
Forecasting the cash flows for years five and beyond
Discounting all the cash flows to current value
Comparing intrinsic value to market value
Making the Discounted Cash Flow Analysis Work for You
Websites to help you do a DCF without all the math
Knowing the limitations of the DCF analysis
Chapter 12 Using the Annual Report (10-K) to See What a Company Is Worth
Familiarizing Yourself with the Annual Report
First, a word on the difference between the annual report and the 10-K
Introducing the 10-K
Highlighting the annual report to shareholders
Getting your hands on the 10-K
Dissecting the main sections of the annual report
Business
Risk factors
Unresolved staff comments
Properties
Legal proceedings
Executive officers
Market for registrant’s common equity
Selected financial data
Management’s discussion and analysis
Quantitative and qualitative disclosures about market risk
Financial statements and supplementary data
Changes in and disagreements with accountants
Controls and procedures
Part III: Corporate governance
Exhibits and financial statement schedules
Executive sign-off
Auditor opinion
How to Tackle a Massive Annual Report
Starting from the bottom up: The footnotes
Assets and liabilities that aren’t on the balance sheet
Understanding pension liabilities
Changes to accounting and inventory
Debt repayment timeline
Effects of tax rates
See what management has to say for itself
Forward-looking information
An examination of the real risks
Comparing a company’s promises with reality
Being aware of legal skirmishes
Paying close attention to amended 10-Ks
Examining What the Auditor’s Opinion Means For Investors
Paying attention to tiffs between a company and its auditors
Understanding the importance of financial controls
Reading the audit opinion
Chapter 13 Analyzing a Company’s Public Comments and Statements
Using Analyst Conference Calls as a Source of Fundamental Information
Understanding the purpose of analyst conference calls
The dimming guiding light of guidance
Unique things to look for in analyst conference calls
How to access the analyst conference calls
Getting in Tune with Fundamental Information from the Media
Bolstering your fundamental analysis with media reports
What fundamental analysts look for in the media
When to be skeptical of executives’ claims in the media
Knowing When to Pay Attention at Shareholders’ Meetings
What to expect during a company’s annual meeting
Putting the “fun” in fundamental analysis
Chapter 14 Gleaning from the Fundamental Analysis Done by Others
Reading Analysts’ Reports for Fundamental Analysis Clues
Why reading analysts’ reports can be worth your time
Understanding the types of firms that put out stock research
Broker research
Independent research
Keying into the main types of analyst research
How to read between the lines of an analyst report
Getting your hands on analyst reports
Interpreting Credit-Rating Agencies’ Reports For Fundamental Analysis
The role of reports issued by credit-rating agencies
Getting your hands on the credit rating
Knowing when a company’s credit rating is suspect
Finding Fundamental Data about Companies Using Social Investing
The origins of social investing
Why it might be worth paying attention to nonprofessionals
How to plug into social networking
Following the moves of big-time investors
Finding out who a company’s biggest investors are
Following famous investors moves using Morningstar
Chapter 15 Performing “Top-Down” Fundamental Analysis
Broadening Out Fundamental Analysis to Include Monitoring the Economy
How the economy has an overriding effect on a company
Ways the economy can alter your fundamental analysis
How interest rates can alter what companies are worth
Analyzing the Key Measures of the Economy’s Health
Being aware of the business cycle
Using government statistics to track the economy’s movements
Getting a Jump on the Future Using Leading Economic Indicators
Paying attention to the Conference Board Leading Economic Index
Using the stock market as your economic early warning system
Part 4 Getting Advanced with Fundamental Analysis
Chapter 16 Digging into an Industry’s Fundamentals
Realizing How a Company’s Industry Can Influence Its Value
What’s in an industry?
Following the ups and downs of industries
How to Track How Sectors Are Doing
Keeping tabs on a sectors’ fundamentals
Tracking the stock performances of sectors
Using exchange-traded funds to monitor sectors and industries
Adding Industry Analysis to Your Fundamental Approach
Sizing up a company’s financials relative to its industry’s
Find out who a company’s competitors are
Considering industry-specific data
Taking stock of raw material costs
It’s mine! Paying attention to market share
Chapter 17 Pinpointing Trends Using Fundamental Analysis
Understanding Why to Consider Trends
When trends can be very telling about a company’s future
Attempting to forecast the future using trends
Attempting to forecast the future using index-number analysis
Applying moving averages to fundamental analysis
Finding Trends in Insider Trading Information
When a CEO is bullish, should you be, too?
Paying attention to when a company buys its own stock
Watching when the insiders are selling
How to track insider selling
Designing Screens to Pinpoint Companies
Examples of what screening can tell you
Step-by-step instructions on building a sample screen
Chapter 18 Avoiding Investment Blowups with Fundamental Analysis
Uncovering the Dangers of Not Using Fundamental Analysis
Why investing in individual companies is risky business
Ignore the fundamentals at your own risk
Why digging out of a hole is so difficult
Avoiding bubbles and manias
Price-to-earnings ratios getting inflated
Dividend yields sagging
Price-to-book ratios skyrocketing
Profitability becomes meaningless
Finding and Avoiding Financial Red Flags
A real-life pattern for suit-worthy shenanigans
The rationale behind shenanigans
Red flags that signal shenanigans
Swelling accounts receivable
Overvalued intangible assets
Massive big-bath and “one-time” charges
Low “quality” earnings
Increasing borrowing, or leverage
Chapter 19 Marrying Fundamental Analysis with Technical Analysis
Understanding Technical Analysis
Reading the stock price charts
What technical analysts are looking for in the charts
How technical analysis differs from fundamental analysis
Blending Fundamental and Technical Analysis
Using stock prices as your early-warning system
Looking up historical prices
The Primary Tools Used by Technical Analysts
Getting into the groove with moving averages
Keeping an eye on trading volume
The ABC’s of Beta
The long and short of short interest
Keeping a Close Eye on Options
Understanding the types of options
Paying attention to put and call price levels
Watching the put-to-call ratio
Using the market’s fear gauge: The Vix
Applying Technical Analysis Techniques to Fundamental Analysis
Giving fundamental data the technical analysis treatment
Following the momentum of fundamentals
Part 5 The Part of Tens
Chapter 20 Ten Things to Look at When Analyzing a Company
Measuring How Much of a Company’s Earnings Are “Real”
Considering How Much Cash the Company Has
Making Sure You Don’t Overpay
Evaluating the Management Team and Board Members
Examining the Company’s Track Record of Paying Dividends
Comparing the Company’s Promises with What It Delivers
Keeping a Close Eye on Industry Changes
Understanding Saturation: Knowing When a Company Gets Too Big
Avoiding Blinders: Watching the Competition
Watching Out When a Company Gets Overly Confident
Chapter 21 Ten Things Fundamental Analysis Cannot Do
Ensure You Buy Stocks At The Right Time
Guarantee You’ll Make Money
Save You Time When Picking Stocks
Reduce Your Investing Costs
Protect You from Every Fraud
Easily Diversify Your Risk Over Many Investments
Predict the Future
Make You the Next Warren Buffett
Protect You from Your Own Biases
Overcome the Danger of Thinking You’re Always Right
How to measure your portfolio’s return
How to measure your portfolio’s risk
Sizing up your portfolio’s risk and return
Index
EULA