Learn (Economics) · Course
Reading Financial Statements: Fundamental Investing by the Numbers
From finding disclosures to the balance sheet, income statement, cash flow statement, and warning signs. Build the basics of fundamental investing: judging value from a company's numbers.
Getting to know DART
Learn what DART is and which reports are posted when, and find and open the report you want on your own.
Financial statements are a company's health checkup
Summarizes the balance sheet, income statement, cash flow statement, statement of changes in equity, and notes on a single page.
Read✓ ReadDART is the official bulletin board for companies
The Financial Supervisory Service's electronic disclosure system, where the official documents listed companies must file by law are gathered.
Read✓ ReadHow to find a company on DART and open its report
Follow step by step how to search by company name, filter by period and report type, and navigate the table of contents.
Read✓ ReadWhen do annual, half-year, and quarterly reports come out?
See a one-year disclosure calendar for December fiscal-year companies as a timeline.
Read✓ ReadAnnual report map: where to start?
Learn the order for skimming a thick business report in 10 minutes.
Read✓ ReadBalance sheet: a company's inventory of assets
Understand the structure assets = liabilities + equity, and judge how safe a company is.
The balance sheet is a company's list of belongings
Assets = liabilities (other people's money) + equity (your own money). A snapshot as of a specific date.
Read✓ ReadAssets: cash, inventory, and the factory
Distinguish current assets that turn into cash within a year from non-current assets used for a long time.
Read✓ ReadLiabilities: debts come in different kinds
Distinguish interest-bearing borrowings from trade payables and advances received that arise in the course of business.
Read✓ ReadEquity: Shareholders' stake and capital impairment
Look at share capital, retained earnings, and capital impairment, which arises when losses pile up.
Read✓ ReadGauging safety with debt and liquidity ratios
Calculate the debt ratio and the current ratio and see why the benchmarks differ by industry.
Read✓ ReadConsolidated and separate financial statements
See the difference between consolidated statements, which include subsidiaries, and separate statements, which look at one company alone.
Read✓ ReadIncome statement: a report card for a year of business
Understand the staircase from sales down to net income, and tell core-business strength apart from one-off gains.
The income statement is a report card for a year of business
See the staircase of sales → gross profit → operating profit → net income in a diagram.
Read✓ ReadRevenue and cost of sales
Read the tug-of-war between raw material prices and selling prices through the gross margin.
Read✓ ReadOperating profit: the core business's true ability
Look at core-business profit left after subtracting selling and administrative expenses, and at the operating margin.
Read✓ ReadWhy net income differs from operating profit
Separate interest expense, FX gains and losses, and one-off gains and losses.
Read✓ ReadEPS and P/E: What one share earns
Calculate EPS = net income ÷ number of shares and P/E = share price ÷ EPS yourself.
Read✓ ReadReading quarterly results: year-over-year and seasonality
Learn how to read QoQ and YoY and preliminary earnings disclosures.
Read✓ ReadCash flow statement: the money that actually hit the bank account
Understand that profit and cash can differ, and check a company's strength through its cash flows.
The cash flow statement is the real bank record
See the difference between book profit and the cash that actually came in and went out.
Read✓ ReadReading operating, investing, and financing activities in three columns
Infer the company type from the +/− combination of the three columns.
Read✓ ReadFree cash flow (FCF): the money that's really left over
FCF = operating cash flow − capital expenditure. The source of dividends and debt repayment.
Read✓ ReadWhy do profitable companies fail? Bankruptcy despite profits
When receivables and inventory pile up, cash can dry up even when the company makes a profit.
Read✓ ReadChecking earnings quality
Build the habit of looking at operating profit and operating cash flow together over three or more years.
Read✓ ReadComparing companies with financial ratios
Compare companies with key ratios, and build the habit of looking at trends within the same industry across several years.
ROE: how much does it earn with shareholders' money?
Break ROE down into profit margin × turnover × leverage.
Read✓ ReadPBR and BPS: share price relative to assets
Look at BPS, PBR, and what a PBR below 1x means.
Read✓ ReadDividend metrics: payout ratio and dividend yield
Learn the payout ratio and dividend yield, and how to read dividend decision disclosures.
Read✓ ReadCompare within the same industry
See why normal ranges differ by industry and how to compare against the industry average.
Read✓ ReadLook at 3–5 year trends, not a single year
Pick out consistent companies using a five-year view of sales, operating profit, and ROE.
Read✓ ReadReading disclosures beyond the numbers
Read the business structure, risk factors, and shareholder-related disclosures that financial statement numbers alone can't show.
Finding how a company makes money in the Business Overview
Look up revenue share by product, order backlog, and raw material prices.
Read✓ ReadNotes: What's behind the financial statements
Find contingent liabilities such as related party transactions, collateral and guarantees, and lawsuits.
Read✓ ReadAudit opinion: anything other than unqualified is a warning sign
Look at the unqualified, qualified, adverse, and disclaimer opinions and going-concern uncertainty wording.
Read✓ ReadPaid-in capital increases, convertible bonds (CB) and treasury stock disclosures
Calculate funding disclosures and ownership dilution.
Read✓ ReadLargest shareholder and 5% stake disclosures
Read largest-shareholder changes, large shareholding reports, and trading disclosures by officers and major shareholders.
Read✓ ReadPreliminary results and correction disclosures
See the preliminary results that come out before the business report, and the correction disclosures that keep recurring.
Read✓ ReadPutting it into practice: read and judge for yourself
Pull together what you've learned to screen out warning signs, read a real business report, and sum it up in a one-page note.
10 warning-sign checklist
Check for signs to avoid, such as consecutive losses, capital impairment, and frequent CB issuance.
Read✓ ReadPractice: a sturdy company vs. a risky company
Compare Robin Bakery's and Dark Cloud Electronics' financial statements side by side.
Read✓ ReadPractice: reading a real business report together
Read the business reports of a large manufacturer and a bank in table-of-contents order.
Read✓ ReadGraduation: your own one-page company analysis note
Write a six-box note covering business, growth, profitability, stability, cash, and shareholder disclosures.
Read✓ ReadThis is educational material and not investment solicitation. There is no guarantee that past relationships will repeat in the future.