MEPX
Chapter 6 of 12All chapters
  1. 1What a share is
  2. 2Exchanges and brokers
  3. 3How a price is set
  4. 4Order types
  5. 5What it costs
  6. 6Reading a company
  7. 7Dividends and returns
  8. 8Indexes and funds
  9. 9Risk and diversification
  10. 10Market cycles
  11. 11Psychology and mistakes
  12. 12Learning further

Chapter 6 of 12

Reading a company

Revenue, profit and the ratios.

The three statements

The income statement shows revenue and profit over a period. The balance sheet shows what is owned and owed at a moment. The cash flow statement shows money actually moving, which is harder to dress up.

  • Revenue is sales. Profit is what remains after costs. They can move in opposite directions.
  • Debt matters most when rates rise or revenue falls.

Ratios

Price to earnings compares the share price with earnings per share, so it says what you pay for a unit of current profit. It is only meaningful against similar companies and their growth rates.