Advanced fundamental Analysis (part 1)

Income statement

Basic definitions and ideas:

• TTM — Shows past twleve months

• Total revenue — Revenue exluding all expenses

• Operating expenses - The expenses for running the business, like paying employees, marketing, research and dev etc.

• Gross profit = total revenue - all expenses

• Gross profit margin = gross profit/total revenue.

• Operating income = Gross profit - total operating expenses. Operating margin = operating income/total revenue x 100.

• EPS is the total profit per share of a company, its total income/number of shares.

• Basic EPS only takes into account stocks, but diluted eps takes into account all securities like options etc. Same for basic average shares and diluted average shares(these both are the number of shares available)

Signs and patterns to look for:

• Compare gross profit and gross profit margin to other companies of the same industry/competitors of this company

• Net income is total profit, its income before tax - tax. And this is the main number that you should be looking at

• Check if cost of revenue increased as much as the increase in revenue between two years, if cost of revenue didn't increase as much as increase of revenue then its a good sign. If increase in cost of revenue is greater or equal, then not a good sign

• Higher the gross profit margin, the better, coz that means that gross profit is higher and cost of revenue is lower

• It is favourable for operating expenses to be stagnant or to decrease over time as it takes a part of revenue

• Generally, an operating margin above 15% is good

• Interest expense is the money the company spent on paying back interest from the bank or union that they took loan from. You don't want this increasing over time, this should keep decreasing or at least stay stagnant

• Total other income/expenses - Is the income or expenses which the company may have through other ways that aren't the general day to day operation, so it's best if its positive and increasing. Its basically income or expenses through other forms

• It is always favourable for EPS to increase.

For every single company that you are investing in, it is not needed to look at all of these details. Only for those companies that you wish to hold on for in the long term(more than one year), these details are crucial.

Keep investing.