Financial Statement Analysis – A DIY Investor Course

Financial StatementAs an investor, I often read the financial statements of a company during my research. It’s an important step to understand the company’s profitability and debt. Public companies are obligated to report the finances of the company through standard statements on a regular basis such as quarterly and annually.

When you first open a financial statement, you are faced with some commentary and pretty graphs soon followed by tables of data. The commentary and pretty graphs at the front of the statement are usually what the company wants you to take away. In some cases, it speaks the truth, in others, it could hide critical information that could change your mind. To get to the bottom of the company’s financial status, you must read through the tables filled with data as it highlights the money coming in and the money going out leading to a company making profits.

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A Course on Financial Statements

Sure Dividend introduced a new course with the purpose to help investors learn how to decipher a company’s financial statement to make better investment decisions. No background necessary for the course other than being an investor and wanting to know how to read a financial statement.

Even if you have some knowledge and already read financial statements, there is something around accounting categorization that you will certainly learn – I know I did.

How To Analyze Financial Statements

The course has 6 modules broken down systematically so that you master one topic before you move on to the next and leverage what you learned.

Accounting Fundamentals

Accountants are at the core of the business and are expected to track everything related to finances. All the money coming and going out must be tracked and accounted for. It must be well-categorized for both the management team, the auditors and the investors to know where the money goes.

The management team needs to know where to optimize their profits and eliminate waste. The investors want to understand what the potential results of management’s decisions will lead to.

Accounting is where it all starts. Take your time to grasp this section. It took me about 45 minutes to go through it and ensure I was grasping how the numbers were fitting together. Forensic accountants would map everything to understand if there is fraud or miss-representation of funds. Consistency is the key here and one mistake can lead to showing a loss or a gross margin reduction.

Income Statement Analysis

The income statement section is all about understanding the profit of the company but not just as one total but at each of the different levels. Margins are important to understand and to assess if it’s growing or shrinking. The module took around 50 minutes to go through.

A growing margin implies a moat with little competition and a shrinking margin would imply competition. Think of the impact Amazon is having on consumer defensive retails such as Costco Wholesale, Walmart or Target. Those businesses may show growth but where is it coming from? Is it just cutting cost or improving their margins?

Financial Statement - Operating Margin

This section helps you figure out those numbers really quickly. Each sector should be looked at differently as the cash flow is more important than the margin.

As part of the income statement, you will learn about depletion, depreciation, and amortization. More importantly, you will learn the impact it can have on investors. Further to those metrics, EBIT and EBITDA will also be covered. Here is a snippet on the importance of the metrics.

EBIT allows investors to analyze the core business unit without being skewed by changes to market interest rates, government tax policy, or discrete tax credits.

Balance Sheet Analysis

This section appears simple when you read the balance sheet but it’s actually critical for investors to put the numbers together for an effective assessment of the company. I spent around 50 minutes going through the module. You may be aware of many of the metrics but you may learn about new metrics such as working capital or current ratio calculations.

One important metric in this module beyond the liability and asset relationship is the book value, its calculation and how to use it in your investment research. Plotting the price to book value over time can also be interesting as highlighted in the module. It can give investors a good insightinton the valuation today against the market and against its peers.

Financial Statement - Shareholder Equity

The module ends with reviewing debt and how to use the metric as an investor with the debt-to-equity ratio.

Cash Flow Statement Analysis

The cash flow module tool 20 minutes to go through. While it is a short module, understanding the cash flow financial statement is important as it wraps up an important metric for investors.

Operating cash flow and free cash flow assessment is what you will get out of this module. When it comes to some calculations, it will be important to assess if the dividend is included or not in the calculations.

Multi-Financial-Statement Ratios & Metrics

The final module reviews metrics pertinent to dividend investors for assessing dividend safety as well as understanding the potential return on investment using some of the metrics learned in previous modules. Historical data becomes important for trends, be sure to grab a few years’ worth of annual reports.

The biggest learning you may take away is using the numbers seen previously to estimate future growth. Without being part of management, that’s the closest you’ll ever be to identifying the growth potential of your investments. This last module will take you approximately 30 minutes to complete.

Financial Statement Course Summary

Throughout the course, you will learn many terms in the financial lingo and identify the true financial meaning behind them. Many of those terms are often used in the financial news which will make your understanding of the press releases that much clearer. In fact, you will know exactly where in the financial statement you can validate what was said. You should also be able to execute some quick mental math if you made notes of the formulas explained.

The course walks you through all of the terms necessary to understand a financial statement. You may already be interpreting them when reading press releases on quarterly disclosure but unless you have the financial meaning of those terms, your conclusion may be incorrect.

How To Analyze Financial Statements

It’s not just a reading exercise either. Each module has a quiz to ensure you understand the concepts. You can go back and take the quiz as many times as you want, it’s for you to evaluate yourself. Every DIY investor is focused on making money and I believe the course offers a great entry level education on financial statement analysis that would allow any investors to refine their dividend stock research and reach better results.

The learnings you should expect to gain is a clear understanding of the financial vocabulary and develop a clear approach to understanding the metrics that matter for your stock research. As a one-time investment in yourself, you cannot go wrong with this course.

Available courses for Canadians are limited. There is the CANADIAN SECURITIES COURSE (CSC®) FOR INVESTORS at $495 CAD which may be an option but if you are already familiar with stocks and have a basic understanding of the current investment vehicles, the financial statement course is just what you need for $197 USD. It breaks down to $1 per minute of teaching and you should reap the rewards simply by reviewing your existing holdings to ensure they are fitting your goals.