MASTERCLASS Investment – Ratio Analysis – What is it, where is the data, how to use the ratios?

MASTERCLASS Investment
Ratio Analysis
What is it, where is the data, how use the ratios?

 

In our Masterclass we explore ratio analysis of companies/stocks, including what it is, what data we need and how to use the ratios.

What is Ratio Analysis?

Ratio analysis involves comparing different numbers from the balance sheet, income statement and cash flow statement. It’s most effective when comparing these numbers against previous years, other companies and the industry while bearing in mind the economy in general. Ratios look at the relationships between individual values and relate them to how a company has performed in the past, which may indicate how it might perform in the future.
As an example, current assets alone don’t tell us a whole lot, but when we divide them with current liabilities we get an indication of whether the company has enough money to cover short-term debts.
In this class, we’ll show you how to use ratio analysis to analyse financial reports and get an insight into companies by comparing these ratios against previous years, other companies and industry averages to see how they can tell you a lot about where a company might be headed. Evaluating a company is no easy task, so let us help shed some light on how it can be done and, ultimately, help you to make more informed choices as an investor.

Where is the Data?

There are several different places you can find the latest financial figures for a particular company. Finding financial reports is easier than ever thanks to the Internet, here are some sources:

• Company Websites – Most public companies have a website or investor relations department. For the most current half year (Aust) quarterly (USA) or annual report you find them on their websites and also look for their investor relations sections;
• Australian Stock Exchange (ASX)(Aust) – Have their offices in major cities Melb, Syd etc, and also their website http://asx.com.au/ there are Free member offers announcements, education, company search, market statistics and more. The company search is also invaluable –http://www.asx.com.au/research/company-research.htm;
• Securities and Exchange Commission (SEC) (USA) – The information posted in the electronic gathering, analysis and retrieval (EDGAR) database includes the annual report (known as the 10-K), quarterly report (10-Q), and a myriad of other forms that contain every type of financial data;
• Yahoo! Finance – A great resource for many individual investors, Yahoo! Finance is great for financial news, and lays out ratios and performance data for individual companies;
• Trading room in Aust http://www.tradingroom.com.au/apps/index.ac  – Is a great site for company info, charts; some basic analysis as well as market info and current intra-day news.

How to Create and Use the Ratios

There are 70-90 or more possible ratios. A ratio is simply taking one number from a financial statement and dividing another number into it. Quite simple, no complicated maths. Over time a core dozen or so ratios have been considered essential and some are (click names to learn about them)

Debt to Equity

Current Ratio – one sign of business health

Price to earnings

ROE – Return on Equity – also see Why avoid companies with low ROE

ROA – Return on Assets

Want to learn the core issues of share investing? Our workshop “Navigate to Successful Share Investing” gives a 2 & 1/2 hour practical session to easily understand Company Financial Statements, learn how to find healthy companies, what tools and ratios to use and do examples, and also includes how to get better investment outcomes. Other Bonuses as well. Check for the next one HERE.

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