Understanding companies

Analysing a company starts with understanding how it earns money, what it spends, what it owns and owes, and whether the business can turn growth into durable cash generation.

Revenue and profit

Revenue is the money generated from selling goods or services. Profit is what remains after relevant costs are deducted. Growth in revenue can be encouraging, but the quality of that growth matters just as much as its speed.

The three core statements

The income statement describes sales and expenses over a period. The balance sheet shows assets, liabilities and equity at a point in time. The cash-flow statement explains how cash moved through operating, investing and financing activities.

Earnings per share

Earnings per share, or EPS, expresses profit on a per-share basis. Analysts often compare current EPS with previous periods and expectations to judge whether business performance is accelerating or slowing.

Company reports

Annual and quarterly reports provide far more than headline numbers. They also contain management commentary, risk factors, segment information, accounting notes and evidence about how management allocates capital.

A useful analysis asks not only “did profit rise?” but “why did it rise, is it repeatable, and what evidence supports that conclusion?”