A
- accountants
- changes in and disagreements with, 62, 222–223, 234
- profiting from fundamental analysis, 23
- 10-Ks, 62, 222–223, 234
- accounting scandals, 53, 61, 324–325, 363
- accounts payable, 103, 107, 121
- accounts payable turnover, 142–143
- accounts receivable
- cash flows from operating activities, 121
- defined, 101
- quick ratio, 144
- swelling, 325
- accounts receivable turnover, 141–142, 311, 356
- accrual accounting, 34, 126, 326
- activist shareholders, 160
- Adelphia, 358
- ADP (Automatic Data Processing), 259–260
- agency dilemma, 159–160
- AIG (American International Group), 226
- Alcatel, 54
- Alcoa, 58
- Alphabet, 57, 103, 151, 233, 240
- alternative energy stocks, 51
- Altman’s Z-score, 353–354
- Altria, 232
- Amazon, 118, 131, 294–295
- AMC Entertainment, 264
- American Express, 47
- American International Group (AIG), 226
- amortization
- cash flows from operating activities, 119–120
- earnings before, 129–130
- analyst conference calls, 238–242
- accessing, 241–242
- earnings guidance, 239–240
- purpose of, 239
- what to look for, 240–241
- analysts’ reports, 250–256
- benefits of, 250–251
- broker research, 252–253
- independent research, 253
- obtaining, 256
- skepticism of, 250
- types of, 254
- what to look for, 254–256
- annual reports, 62–63, 215–235, 356. See also 10-Ks
- beautiful reports, 63
- defined, 47, 217
- obtaining, 63, 216
- release of, 63
- 10-K vs., 217–218
- annual reviews, 218
- AOL, 113
- Apple, 47
- arm’s length, 157
- Aron, Adam, 264
- Arthur Andersen, 164, 234
- as reported P-E, 149
- ask price, 52
- asset impairments, 121
- asset turnover, 185–186
- assets, 100–102
- common-size analysis, 106
- current assets, 100–101, 353–354
- defined, 15, 33, 99
- intangible assets, 99, 101, 119, 326
- long-term assets, 101
- not appearing on balance sheet, 226
- relationship between liabilities, equity and, 33–34
- tangible assets, 99, 326
- total, 101–102, 353–354
- AT&T, 54
- audit committees, 160–162
- auditors, 164–165
- Automatic Data Processing (ADP), 259–260
- average daily volume, 338–339
B
- balance sheets, 15, 97–114
- analyzing, 106–111
- assets, 99–102
- dilution, 111–114
- liabilities, 99, 102–104
- overview, 33–34
- shareholders’ equity, 99–100, 104–105
- Bank of America, 47
- base year, 109, 303–304
- Bear Stearns, 327
- Berkshire Hathaway, 44–46, 63, 240, 248, 269, 361
- beta (beta coefficient), 207–208, 338–339
- bid price, 52
- big-bath restatements, 326
- Bing, 246
- Blodget, Henry, 252
- Bloomberg, 293
- Blue Coat Systems, 17
- boards of directors, 157, 160–164. See also management team
- activist shareholders, 160
- biographies, 161
- committees, 160–162
- compensation, 157, 163–164
- composition of, 157
- conflicts of interest, 157, 163
- corporate governance, 159–160
- independence of board members, 161
- meeting attendance rate, 162
- proxy statements, 160
- as shareholders, 157, 165
- Boeing, 315
- Bogle, John, 40
- boilerplate, 220
- bond yields, 206–207
- bonds
- defined, 67
- putting price tag on, 31
- bonuses, 64, 114, 166–167
- book of business, 239
- book value
- boutique research firms, 253
- brokerage accounts, 363
- bubbles and manias, 318–323
- inflated price-to-earnings ratios, 319
- lack of earnings, 323
- sagging dividend yields, 319–320
- skyrocketing price-to-book ratios, 320–321
- technical analysis, 334
- from unlikely places, 322
- Buffett, Warren, 11–12, 38, 44–47, 63, 177, 198, 200, 248, 265, 269, 310, 343, 361, 365
- building permits, 276
- business cycle
- defined, 178
- industries, 282–286
- phases of, 273–274
- business model, 282, 357
- buybacks (stock buybacks)
- cash flows from financing activities, 125
- information on, 221
- reducing danger of dilution, 113–114
- tracking, 307–308
C
- CAGR (compound annual growth rate), 299–300
- call options
- defined, 341
- price levels, 341–342
- put-to-call ratio, 342
- Campbell Soup, 86–89
- candlestick charts, 331–332
- Capital Asset Pricing Model (CAPM), 207–209, 338
- capital expenditures (cap ex), 123–124, 130, 132, 200–201, 204
- capital structure, 107–108, 110, 327
- capital-intensive businesses, 135, 271
- capitalist system, 121, 273, 282
- cash
- analyzing, 352–353
- balance sheets, 100
- quick ratio, 144
- cash equivalents, 100–101, 109, 144, 181
- cash flow, 15, 116–125. See also discounted cash flow analysis; statements of cash flows
- from financing activities, 118, 124–125
- free cash flow, 129–132, 200–201, 203–204
- from investing activities, 118, 123–124
- from operating activities, 118–123, 182, 352
- stable, 181
- cash-burn analysis, 130–132
- cash-flow statements. See statements of cash flows
- Caterpillar, 90
- CDSs (credit default swaps), 226
- CFRA, 253, 255–256
- channel checks, 255, 263
- channel stuffing, 117–118
- Charles Schwab, 256
- Chicago Board Options Exchange
- put-to-call ratios, 342
- Volatility Index (Vix), 343
- chronic restaters, 326
- Ciena, 17
- Cisco Systems, 137–145, 182, 187
- Citigroup, 240
- Coca-Cola, 47, 108–110, 218–220, 230–231, 240, 248
- COGS. See cost of goods sold
- common stock
- defined, 355
- shareholders’ equity, 104–105
- common-size analysis
- balance sheets, 106–108
- income statements, 87–88
- company growth
- comparables, 220
- compensation
- executive compensation, 64, 114, 157, 163–170
- stock-based compensation expense, 120
- compensation committees, 160
- competition, 22, 292, 358
- compound annual growth rate (CAGR), 299–300
- CompUSA, 307
- Conference Board Leading Economic Index, 276–277
- conflicts of interest
- analysts’ reports, 252–253
- boards of directors, 157, 163
- ConocoPhillips, 361
- constant dividend model, 193–194
- consumer discretionary sector, 284
- consumer expectations, 276
- contraction phase, 273–274
- conviction. See volume
- corporate culture, 281
- corporate governance
- boards of directors, 159–160
- investing in individual companies, 316
- poor, 187
- proxy statements, 156, 159–160, 223
- 10-Ks, 223
- cost of capital. See discount rate
- cost of goods sold (COGS)
- accounts payable vs., 121
- common-size analysis, 87
- defined, 79
- gross profit margin, 90
- inventory turnover, 142–143, 291
- operating profit margin, 91
- raw materials costs, 293
- coverage universe, 252
- COVID-19 pandemic, 45, 114, 190, 195, 228, 267–268, 274, 277, 303, 334, 346, 361
- credit default swaps (CDSs), 226
- credit-rating agencies
- credit ratings, 258–259
- reports, 257–262
- Crypto.com, 358
- Culp, Lawrence, 167, 169–171
- current assets (short-term assets), 100–101
- accounts receivable, 101
- Altman’s Z-score, 353–354
- cash, 100
- cash equivalents, 100–101
- defined, 100
- inventories, 101
- marketable securities, 101
- prepaid expenses, 101
- current liabilities, 102–103
- accounts payable, 103
- Altman’s Z-score, 353–354
- current portion of long-term debt, 103
- defined, 102
- short-term debt, 103
- current P-E, 149
- current portion of long-term debt, 103
- current ratio, 111, 136, 178
- cyclical companies, 85, 271, 285
D
- Damodaran Online spreadsheet templates, 213
- dates of record, 192
- day traders, 38, 322
- days to cover, 339
- DCF analysis. See discounted cash flow analysis
- debt
- cash flows from financing activities, 125
- companies with excessive, 48, 52
- credit-rating agencies’ reports, 260–261
- current portion of long-term debt, 103
- debt-to-equity ratio, 143–144, 179
- defined, 25
- increasing, 327
- long-term debt, 52, 103, 125, 179–180
- low debt loads, 178–179
- overall economy’s effect on ability to service, 270
- repayment timeline, 228–229
- short-term debt, 103, 125
- debt-to-equity ratio, 143–144, 179
- default
- credit ratings, 258
- defined, 67
- liquidity, 178
- long-term debt, 103
- rising risk of, 188
- deferred income taxes, 103, 120
- Deloitte, 165
- Delta Air Lines, 346–347
- depreciation
- cash flows from operating activities, 119–120
- defined, 80
- earnings before depreciation, 129–130
- property, plant and equipment, 101
- diluted earnings per share, 93–94, 113, 149, 186, 193
- dilution, 111–114
- buybacks, 113–114
- defined, 93, 112
- employee stock options, 112–113
- motivations for, 112
- direct costs, 79, 86–91, 164
- discontinued operations, losses on sales of, 121
- discount rate (cost of capital), 206–209
- bond yields, 206–207
- Capital Asset Pricing Model, 207–209
- defined, 203, 255
- discounted cash flow (DCF) analysis, 177, 187, 197–214, 272, 338, 366
- analysts’ reports, 251
- benefits of, 198
- components of, 200–209
- discounting cash flows, 210–212
- forecasting cash flows, 209–210
- intermediate-term growth, 203, 205
- limitations of, 214
- long-term growth, 203, 206
- market value vs. intrinsic value, 199–200, 212
- present value, 201–202, 210–211
- websites for, 213–214
- disruptions, 54, 282, 299
- diversification, 315, 364
- breakdown of revenue into units, 82
- concentrated positions vs., 29–30
- index investing, 27
- divestitures
- cash flows from investing activities, 123
- gains on, 120
- dividend payout ratio, 147, 193
- dividend yield, 146–147
- calculating, 190–191
- sagging, 319–320
- dividends
- affordability of, 192–193
- analyzing, 356
- annualizing, 191
- calculating dividend yield, 190–191
- cash flows from financing activities, 125
- cuts and suspensions of, 190, 192–193
- dates, 192
- defined, 72, 190
- dividend histories, 72
- dividend policies, 193–194
- not guaranteed, 194–195
- signals to buy, 177
- Dodd, David, 47–48
- dot-com and tech-stock booms, 16, 40, 50–51, 54, 113, 131–132, 177, 299, 302, 322, 325
- Dow Jones Industrial Average, 27, 58
- downgrading, 259, 261
- dual-class stock structure, 103
- due diligence, 38
- durable consumer goods, 271
E
- earnings
- defined, 23
- lack of, 323
- low quality, 326–327
- managing, 126
- earnings acceleration, 346
- earnings before interest and taxes (EBIT), 79
- Altman’s Z-score, 354
- interest coverage ratio, 145
- return on assets, 184
- return on invested capital, 139
- earnings before interest, taxes, depreciation and amortization (EBITDA), 129–130
- earnings before taxes (EBT), 229
- earnings estimates, 94–96
- earnings expectations. See investor expectations
- earnings guidance, 59, 239–240
- earnings per share (EPS), 92–93
- earnings press releases, 58–59
- analyst conference calls, 238
- components of, 59
- defined, 58
- statements of cash flows vs., 118
- earnings season, 57–58, 126
- earnings yield, 147–148, 177, 186
- Eastman Kodak, 283
- EBIT. See earnings before interest and taxes
- EBITDA (earnings before interest, taxes, depreciation and amortization), 129–130
- EBT (earnings before taxes), 229
- economic analysis, 45
- EDGAR (Electronic Data Gathering, Analysis and Retrieval) database, 69–70, 157–158, 216, 218, 266, 309
- effective tax rate, 229
- efficiency ratios, 136, 141–143
- accounts payable turnover, 142–143
- accounts receivable turnover, 141–142, 311, 356
- inventory turnover, 142, 291
- efficient market theory, 32
- Enron, 61, 116, 129, 163–164, 223, 234, 264, 358
- environmental, social, and governance (ESG), 157
- EPS. See earnings per share
- Equilar Executive Factbook, 166
- equity. See shareholders’ equity
- equity awards, 167
- equity capital, 66
- Estimize, 96, 265
- Ethan Allen, 63
- exchange-traded funds (ETFs), 24, 146, 289, 315
- ex-dividend dates, 192
- executive compensation, 64, 157, 163–170
- bonuses, 64, 114, 166–167
- employee compensation vs., 170
- equity awards, 167
- perks, 168–169
- restricted stock, 169
- salary, 167
- stock options, 169
- expansion phase, 273
- expected market return, 207–208
- eXtensive Business Reporting Language (XBRL) format, 70–71
- ExxonMobil, 135
F
- Facebook, 180, 316
- Fama, Eugene, 41–42
- Fannie Mae, 224
- Fastow, Andrew, 163
- Federal Reserve, 270–272, 275
- Felton, James, 264
- FIFO (first in, first out), 228
- financial condition ratios, 136, 143–145
- financial controls and procedures, 61, 223, 234
- financial crisis of 2008 and 2009. See housing bubble and credit crunch
- financial health. See balance sheets; staying power
- Financial Industry Regulatory Authority (FINRA), 206–207, 261–262
- financial performance, 12, 22
- financial ratios, 15–16, 34–35, 45, 133–153. See also names of specific ratios
- benefits of, 134
- deteriorating, 187
- efficiency ratios, 136, 141–143
- financial condition ratios, 111, 136, 143–145
- liquidity ratios, 35
- management effectiveness ratios, 35, 136–140
- operating performance ratios, 35
- overview, 34
- profitability ratios (profit margins), 89–93, 136
- revenue-to-employee ratio, 134–135
- valuation ratios, 35, 136, 145–148
- financial resources, 13
- financial statements, 8, 21, 32–35, 45. See also names of specific financial statements
- balance sheets, 33–34, 97–114
- in earnings press releases, 59
- income statements, 33, 77–96
- proxy statements, 155–172
- restatements, 224–225, 232–233, 305, 326
- statements of cash flows, 34, 115–132
- 10-Ks, 222–223
- 10-Qs, 60
- financing activities
- cash flows from, 118, 124–125
- overview, 66–67
- through borrowing, 67
- through investors, 66
- FINRA (Financial Industry Regulatory Authority), 206–207, 261–262
- Finviz, 311
- first in, first out (FIFO), 228
- fiscal years, 58
- footnotes, 225–229, 293
- assets and liabilities that aren’t on balance sheet, 226
- in financial statements, 103
- pension liabilities, 226–228
- 10-Qs, 60
- Ford, 10–11, 190–194, 240, 283–284, 291
- Form 4, 309
- forward P-E, 149
- forward-looking information, 230, 239
- Freddie Mac, 163–164
- free cash flow, 129–132, 200–201, 203–204
- calculating, 130
- cash-burn analysis, 130–132
- defined, 129
- EBITDA, 129–130
- French, Kenneth, 41–42
- fundamental analysis, 77–1, 22, 37–54, 67–68. See also financial statements; fundamentals
- benefits of, 9–10
- blindly following other investors, 47
- Buffet’s techniques, 45–47
- difficulty level of, 29
- economic analysis, 45
- effect of overall economy on, 270–271
- financial ratios, 34–35, 45
- goals of, 8, 22–23, 29, 39–44
- horse-race betting analogy, 21
- ideas and concepts behind, 11–14, 21–22
- index investing vs., 26–27
- industry analysis, 45, 254, 281–295
- investment dangers and disasters, 313–327
- limitations of, 359–368
- profitability of, 31–32
- risks of, 29–30
- signals to buy, 16, 176–186
- signals to sell, 16, 187–195
- speculation vs., 48
- technical analysis, 27–28, 41–42, 329–347
- third-party analysis, 249–266
- “three factors,” 42
- timing of buying/selling, 48–54, 360
- top-down analysis, 267–277
- trend analysis, 176, 183, 297–312
- what to look for, 351–358
- who can perform, 23–24
- fundamentals
- accounting and math, 65–68
- Buffet’s techniques, 45–47
- data, 12
- financial resources, 13
- following the money, 24–25
- macro trends, 13
- management team, 13
- obtaining data, 68–74
- perils of ignoring, 16–17
- reports, 55–68, 215–235
- valuation, 13
G
- GAAP (Generally Accepted Accounting Principles), 80
- gains on divestitures, 120
- GameStop, 17, 50–51, 262, 320–322, 340
- GDP (gross domestic product), 275
- General Accounting Office, 81
- General Electric (GE), 69, 72–74, 82, 162, 165, 167–172, 218, 224, 233, 259, 365
- General Motors (GM), 10–11, 82, 290–291
- Generally Accepted Accounting Principles (GAAP), 80
- Global Industry Classification Standard (GICS), 283–285
- going concerns, 35, 235
- auditor’s opinion, 62
- risk of default, 188
- golden parachutes, 172
- goodwill, 101
- Google, 57, 105, 151, 233, 240, 246
- Google Finance, 311
- government statistics, 274–275
- Graham, Benjamin, 44, 47–48
- gross domestic product (GDP), 275
- gross profit (gross margin), 90, 219
- gross profit percent, 90
- growth stocks and investors
- index investing, 41
- performance of, 355
- price-to-book ratio, 146
- slowing growth, 54
- value stocks vs., 39, 189
H
- Halpin, James, 307
- head and shoulders pattern, 333
- Hershey Food, 102, 104–108
- Hewlett-Packard HP 12C financial calculator, 202–203, 211, 300, 368
- high-low-close charts, 331
- high-quality earnings, 127
- historical trend analysis. See trend analysis
- housing bubble and credit crunch (financial crisis of 2008 and 2009), 8, 16, 20, 50, 54, 160, 172, 177, 220, 270, 327, 364–365
I
- IBM (International Business Machines), 81–85
- Icahn, Carl, 160, 265
- idea reports, 254
- IFA Index Calculator, 368
- Illumina, 23
- income investing, 21, 147, 194
- income statements, 14, 77–96
- components of, 79–80
- investor expectations, 94–96
- overview, 33
- profit margins, 89–93
- revenue, 79–89
- variation in, 78
- independent research, 253
- index funds and investing, 26–27, 38, 41–42, 177, 315
- index of supplier deliveries, 277
- index-number analysis, 108–110, 303–304
- indirect costs and expenses, 25, 79, 86, 91, 357
- industries
- classification of, 283–285
- defined, 283
- industry analysis, 45, 254, 281–295
- adding to fundamental approach, 290–295
- effect of industry on company value, 282–286
- sectors, 286–289
- industry groups, 283–285
- industry shifts, 54
- industry-specific financial measures, 292
- inflation
- defined, 43
- discounted cash flow analysis, 201
- government statistics, 275
- inventories, 228
- InfoSpace, 17
- initial public offerings (IPOs), 57, 66, 224, 316–317
- insider trading, 266, 306–310
- buybacks, 307–308
- legal vs. illegal, 306
- management as investors, 306–307
- selling, 309
- tracking, 309
- intangibles, 99, 101, 119, 326
- intended federal funds rate, 275
- interest coverage ratio, 145, 179, 188
- interest expense
- interest rates, 271–273, 275
- interest-rate spread, 276
- intermediate-term growth, 203, 205
- International Business Machines (IBM), 81–85
- intrinsic value
- benefits of, 199–200
- defined, 46, 199
- market value vs., 199, 212
- overvaluation, 333
- value investing, 48
- inventories
- accounts payable turnover, 143
- cash flows from operating activities, 121–122
- changes to accounting method, 228
- defined, 101
- inventory turnover, 142, 291
- investing activities
- capacity, 66
- cash flows from, 118, 123–124
- overview, 65–66
- return on investment, 66
- investment banking arms, 252
- investment return, 40
- investor expectations (earnings expectations), 94–96
- chronically missing, 188
- comparing actual financial results with, 94–95
- earnings estimates, 94–96
- expected market return, 207–208
- importance of, 94
- managing earnings to meet, 126
- investor relations, 72
- IPOs (initial public offerings), 57, 66, 224, 316–317
- iShares, 146
J
- JDS Uniphase, 17
- Jif, 113
- J.M. Smucker, 113
- Johnson & Johnson, 259
K
- Kim, Jongchai, 264
- KJE Computer Solutions Business Valuation tool, 213
- Kmart, 113
- Kozlowski, Dennis, 158
L
- large barriers to entry, 298
- last in, first out (LIFO), 228
- leading economic indicators, 275–277
- Conference Board Leading Economic Index, 276–277
- stock market, 277
- Lehman Bros., 111, 220, 327
- leverage
- liabilities, 102–104
- common-size analysis, 106
- current liabilities, 102–103, 353–354
- defined, 15, 33, 99
- long-term liabilities, 103
- not appearing on balance sheet, 226
- pension liabilities, 226–228
- relationship between assets, equity and, 33–34
- total, 353–354
- liability claims, 53
- LIFO (last in, first out), 228
- LikeFolio, 265
- Lilienfeld-Toal, Ulf von, 307
- line charts, 331
- liquidation, 10–11, 67, 326
- liquidity
- short-term liquidity, 110–111
- staying power, 178
- liquidity ratios, 35
- litigation and legal proceedings, 53, 221, 231–232
- long-term assets, 101
- long-term debt, 103, 179–180
- current portion of, 103
- defined, 52
- statements of cash flows, 125
- long-term growth, 203, 206, 255
- long-term liabilities, 103
- Lucent, 54
M
- M&As. See mergers and acquisitions
- Mackey, John, 264
- macro trends, 13, 62
- maintenance reports, 254
- management effectiveness ratios, 136–140
- management team. See also boards of directors; executive compensation
- analyst conference calls, 240–241
- analyzing, 46, 355
- boards of directors, 157, 160–164
- comments in earnings press releases, 59
- evidence of skill, 176, 183–186
- experience of, 156
- insider trading, 306–307, 309
- overview, 13
- questionable management, 187
- shareholders’ meetings, 247–248
- skepticism of executives’ claims in media, 245–246
- 10-Ks, 60, 221–223
- management’s discussion and analysis (MD&A), 60–61, 222, 229–231
- managing earnings, 126
- manias. See bubbles and manias
- manufacturers’ new orders, 276
- manufacturing hours, average weekly, 277
- margin of safety, 46, 48, 200
- market for registrant’s common equity, 221
- market risk
- price movements, 42
- quantitative and qualitative disclosures about, 222
- market share, 282, 294–295
- market value (market capitalization), 150, 312
- calculating, 41
- components of, 49
- defined, 41, 199
- intrinsic value vs., 199, 212
- shares of smaller companies measured by, 42
- stock splits, 73
- marketable securities, 101, 109
- MarketSmith, 311
- MasterCard, 49–50, 136, 150–151
- material and non-public information, 23
- MD&A (management’s discussion and analysis), 60–61, 222, 229–231
- media reports, 243–246
- credit-rating agencies’ reports, 260
- information provided by, 244–245
- skepticism of executives’ claims, 245–246
- what to look for, 245
- meme stocks and investors, 8, 17, 50–51, 177, 262, 320–321
- mergers and acquisitions (M&As)
- cash flows from investing activities, 123
- dilution, 112–113
- logical, 113
- Merrill Lynch, 252
- Meta Platforms, 180
- Microsoft, 90–92, 259
- Microsoft Excel
- analyzing XBRL data, 71
- present value, 202
- spreadsheet help and tutorials, 29
- Milton Hershey School Trust, 103
- momentum investors, 38, 183, 345–347
- Mondelez International, 119, 122, 124–125, 127–128
- Moneychimp Cash Flow Calculator, 213
- Moody’s, 47, 258–260
- Morningstar, 266, 312, 345
- moving average analysis, 28, 304–306, 336–337
- MSCI, 283
- MSN Money, 70, 256, 312, 338, 343
- multiples. See valuation ratios
- Musk, Elon, 51, 167, 170
N
- Nasdaq, 56, 310, 339
- National Bureau of Economic Research (NBER), 274, 277
- NBCUniversal, 172
- net income (net profit; net margin), 88–89, 116
- calculating, 88
- defined, 80
- overview, 92
- quality of earnings, 352
- return on assets, 184
- return on equity, 138
- revenue vs., 88
- net loss, 92
- net worth, 98–99
- New Constructs, 213, 256
- new products, 245, 347
- New York Stock Exchange (NYSE), 56
- New York University, 150
- Nike, 58
- nominating committees, 160
- noncyclical companies, 285
- number of shares outstanding, 41, 49–50, 71, 112
- cash per share, 181
- discounted cash flow analysis, 203–205
- earnings per share, 92–93
- market value, 199, 212
- price-to-book ratio, 146
- NYSE (New York Stock Exchange), 56
O
- one-time charges, 326
- online resources
- analysts’ reports, 256
- Berkshire Hathaway annual reports, 47
- big investors’ Twitter accounts, 265
- charting service, 345
- Cheat Sheet (companion to book), 3
- commodity prices, 293
- Conference Board Leading Economic Index, 277
- credit-rating agencies’ reports, 260
- current ratios, 111
- discounted cash flow analysis, 213–214
- executive compensation, 166, 169
- General Electric, 72
- government statistics, 275
- Hewlett-Packard HP 12C financial calculator manual, 203
- IFA Index Calculator, 368
- industry data and financial ratios, 291
- Microsoft Excel spreadsheet help and tutorials, 29
- MSN Money, 70
- National Bureau of Economic Research, 274
- price-to-earnings ratio calculation, 150
- put-to-call ratios, 342
- S&P Dividend Aristocrat list, 195
- SEC EDGAR database, 69
- sector performance data, 287–288
- social investing, 264–265
- sports facility naming rights, 358
- stock message boards, 264
- stock screening tools, 311–312
- tracking insider trading, 310
- Trade Reporting and Compliance Engine, 206, 261
- Vix, 343
- Yahoo! Finance, 70, 73, 95, 208, 242, 288
- open interest, 342
- open market purchases, 170
- operating activities
- operating expenses, 79
- administrative expenses, 79
- marketing expenses, 79
- research and development, 79
- operating income, 149, 299–302, 304–305
- operating P-E, 149
- operating performance ratios, 35
- operating profit (operating margin)
- overview, 91–92
- saturation, 357
- operating profit percent, 90
- option chain, 341
- options, 340–343
- defined, 341
- diluted earnings per share, 93–94
- dilution, 112–113
- excesses, 158
- executive compensation, 169
- price levels, 341–342
- put-to-call ratio, 342
- types of, 341
- Vix, 343
- Oracle, 299–306
- OTC Bulletin Board, 57
- OTC Pink (Pink Sheets), 57, 246
- overboarding, 160, 172
- overvaluation, 29, 48, 51, 148–149, 151–152, 176, 187–188, 194, 257, 308, 326, 333, 340, 366
- ownership
- buying business vs. trading stocks, 11–12
- investing as owner, not trader, 46
- proxy statements, 157
- Oxford City Football Club, 246
P
- P&G (Procter & Gamble), 113, 204–205, 207–210, 212
- Palm Computing, 40
- passive investing, 12–13, 16, 53
- payable dates, 192
- P-E ratio. See price-to-earnings ratio
- peak phase, 273
- PEG ratio, 151, 183, 188, 319
- penny stocks, 57
- pension liabilities, 226–228
- Per Se, 23
- percentage changes
- calculating, 67–68
- company growth, 83–84
- defined, 67
- perks, 168–169
- per-share price, 49–50, 73, 136, 150
- Pfizer, 259
- Philip Morris USA, 231–232
- Pink Sheets (OTC Pink), 57, 246
- PP&E. See property, plant and equipment
- preferred stock
- defined, 93
- shareholders’ equity, 104
- prepaid expenses, 101
- present value, 201–202, 206, 210–211, 300
- price-to-book ratio, 145–146, 181, 311
- growth stocks, 355
- inflated, 188
- skyrocketing, 320–321
- price-to-earnings (P-E) ratio, 35, 145, 148–153, 177, 197, 311
- benefits of, 149–150
- calculating, 148–150
- comparing company financials to industry, 290
- earnings yield, 186
- of entire market, 152–153
- inflated, 189, 319
- overvaluation, 188
- PEG ratio, 151, 183, 188, 319
- reciprocal, 186
- S&P Dow Jones Indices, 287–288
- technical analysis, 345
- variations of, 148–149
- PricewaterhouseCoopers, 235
- pro forma earnings, 95–96
- Procter & Gamble (P&G), 113, 204–205, 207–210, 212
- profit margins (profitability ratios), 89–93, 136
- defined, 89–90
- earnings per share, 92–93
- gross profit, 90
- net income, 92
- operating profit, 91–92
- return on assets, 185
- profitability, 14. See also income statements
- property, plant and equipment (PP&E), 101
- investments in, 123
- 10-Ks, 220
- updating and upgrading, 123
- prospectuses, 317
- proxy statements (14As), 64, 155–172
- auditors, 164–165, 171
- boards of directors, 157, 160–164
- corporate governance, 156, 159–160, 223
- defined, 64, 156
- executive compensation, 64, 157, 163–170
- information gained from, 64, 156–157
- obtaining, 157–158
- other shareholders, 157, 165, 170–172
- PSINet, 358
- public comments and statements, 237–248
- analyst conference calls, 238–242
- media reports, 243–246
- shareholders’ meetings, 247–248
- publicly-traded companies
- defined, 7–8
- transparency, 56–57
- PurchasePro, 325
- put options
- defined, 341
- price levels, 341–342
- put-to-call ratio, 342
- put-to-call ratio, 342
Q
- qualified auditor’s opinions, 62
- quality of earnings, 314, 352
- quantitative research firms, 253
- quick ratio, 144
R
- RadioShack, 235
- raw materials costs, 293
- Ready Ratios, 111, 291
- real money supply, 276
- real-estate investment trusts (REITs), 193
- recessions, 268–269, 271, 273–274, 277, 360
- recovery phase, 274
- Reddit, 38, 50, 265, 340
- regional economic activity, 275
- Regulation Fair Disclosure (Regulation FD), 241, 243
- REITs (real-estate investment trusts), 193
- related-person transactions (related-party transactions), 163
- Relative Strength Index (RSI), 343
- resistance levels, 332
- restatements, 224–225, 232–233, 305, 326
- restricted stock, 93, 167, 169
- retained earnings
- Altman’s Z-score, 353–354
- shareholders’ equity, 99, 105
- retirement accounts, 363
- return on assets, 136, 183–185, 311
- return on equity (ROE), 136, 138–139, 183, 311, 327
- return on invested capital (ROIC), 35, 136, 139–140, 183
- return on portfolio, measuring, 366–367
- revenue, 79–89
- accounts receivable turnover, 141
- Altman’s Z-score, 354
- breakdown into units, 81–82
- company growth, 82–85
- defined, 79
- direct costs, 79, 86–89
- improper revenue recognition, 81
- information gained from, 80
- international vs. domestic, 86
- net income, 88–89
- revenue growth, 83–85, 89, 129, 356
- decelerating, 187
- fast-growing companies, 311
- swelling accounts receivable, 325
- revenue recognition, 81, 325
- revenue-to-employee ratio, 134–135
- reverse stock splits, 73–74
- risk
- changing appetite for, 188
- credit-rating agencies’ reports, 259
- discounted cash flow analysis, 201
- market risk, 42, 222
- measuring portfolio’s risk, 367–368
- rising risk of default, 188
- specific risk, 314–315
- systematic risk, 314–315
- 10-Ks, 62, 220, 222, 230–231
- risk-free rate, 207–208
- Ritter, Jay, 317
- Robinhood, 317
- ROE (return on equity), 136, 138–139, 183, 311, 327
- ROIC (return on invested capital), 35, 136, 139–140, 183
- RSI (Relative Strength Index), 343
- Ruenzi, Stefan, 307
- Russell 3000, 45
S
- S&P. See Standard & Poor’s
- Sarbanes–Oxley Act of 2002, 61, 223
- saturation, 357
- say on pay votes, 172
- Sears, 113
- SEC. See Securities and Exchange Commission
- secondary market, 66
- Sector SPDRs, 288
- sectors, 283–285
- business cycle and performance of, 286
- exchange-traded funds, 289
- fundamentals of, 286–288
- stock performance of, 288, 335
- Securities and Exchange Commission (SEC)
- analysts’ reports, 252
- disagreements, 220
- EDGAR database, 69–70, 157–158, 216, 218, 266, 309
- executive compensation, 169
- Form 4, 309
- fraud, 246, 325
- pro forma earnings, 96
- proxy statements, 64, 157–158
- Regulation FD, 241, 243
- 10-Qs, 60
- 13F-HRs, 266
- securities class-action lawsuits, 323–324
- Security Analysis, 28
- selective disclosure, 56
- shareholder proposals, 64, 157, 165, 171–172
- shareholders’ equity, 104–105
- additional paid in capital, 105
- Altman’s Z-score, 354
- calculating, 99–100
- common stock, 104–105
- common-size analysis, 106
- defined, 25, 33, 99
- low debt loads, 179
- preferred stock, 104
- price-to-book ratio, 146
- relationship between assets, liabilities and, 33–34
- retained earnings, 105
- return on equity, 138
- total, 105
- treasury stock, 105
- shareholders’ meetings, 247–248
- fun, 248
- general script for, 247–248
- short interest, 339–340
- short selling, 321, 339–340
- short squeezes, 340
- short-term assets. See current assets
- short-term capital gains, 53
- short-term debt, 103, 125
- short-term liquidity, 110–111
- Silicon Investor, 264
- sin stock, 232
- size of companies
- measuring, 41–42
- revenue and, 80
- shares of smaller companies measured by market value, 42
- Snap, 103
- SolarCity, 51–52
- special-purpose acquisition companies (SPACs), 224–225
- specific risk, 314–315
- speculation and speculators, 38, 48
- speculative returns, 40, 44
- spread, 52
- Standard & Poor’s 500, 27, 44–45, 111, 114, 127–128, 148, 152–153, 177
- buybacks, 307–308
- COVID-19 recession, 268–270
- Dividend Aristocrats list, 195
- dividend yield, 320
- dividends, 192, 195
- executive compensation, 163–164, 167
- financial crisis of 2008 and 2009, 269
- leading economic indicators, 277
- long-term debt, 179–180
- Standard & Poor’s (S&P)
- credit ratings, 258–260
- Dow Jones Indices, 287–288
- GICS, 283
- standard deviation, 315, 367–368
- statements of cash flows, 115–132
- benefits of, 117
- cash flows from financing activities, 118, 124–125
- cash flows from investing activities, 118, 123–124
- cash flows from operating activities, 118–123
- components of, 118
- earnings vs. cash flow, 126
- free cash flow, 129–132
- importance of cash flow, 116
- low-quality earnings, 326–327
- monitoring cash flow, 126–128
- overview, 34
- staying power (financial health), 21, 35. See also balance sheets
- cash per share, 181
- current ratio, 136, 178
- liquidity, 178
- low debt loads, 178–179
- stable cash flows, 181
- Tier 1 and Tier 2 capital, 293
- stock buybacks. See buybacks
- stock message boards, 262–264
- stock price charts, 27, 330–332
- types of, 331–332
- what to look for, 332
- stock prices, 277
- stock screening, 310–312, 364
- benefits of, 310
- building screens, 311–312
- categories of, 311
- stock splits, 72–74
- defined, 72
- obtaining data, 73–74
- reverse, 73–74
- stock-based compensation expense, 120
- Stocktwits, 265
- story stocks, 51–52
- strike price, 341–342
- subindustries, 283–285
- Sun Microsystems, 17
- suppliers, 22, 102–103, 118, 126, 142, 220, 255
- support levels, 332
- systematic risk, 314–315
T
- T. Rowe Price, 180
- Take-Two Interactive, 316–317
- tangible assets, 99, 326
- Target, 294–295
- taxes
- auditing firms, 165
- deferred income taxes, 103, 120
- earnings before interest and, 79
- effective tax rate, 229
- income statements, 79
- investing in individual companies, 362
- short-term capital gains, 53
- taxable accounts, 363
- TD Ameritrade, 256
- technical analysis, 38, 41–42, 329–347
- fundamental analysis vs., 27–28, 333
- historical prices, 335–336
- opposition to, 330
- options, 340–343
- stock price charts, 330–332
- stock prices as early-warning system, 335
- terminology, 333
- tools for, 336–340
- using with fundamental analysis, 334–336, 344–347
- what to look for, 332
- technicals, defined, 330
- tech-stock boom. See dot-com and tech-stock booms
- 10-Ks, 61–62, 215–223, 232–233
- annual reports vs., 217–218
- competitors, 292
- defined, 61, 217
- key elements of, 61–62, 219–223, 225–235
- obtaining, 218–219
- revisions and restatements, 224–225, 232–233, 305, 326
- 10-K wraps, 63, 218
- 10-Qs vs., 61
- 10-Qs, 59–61
- components of, 60
- deadlines, 59–60
- defined, 59
- lack of auditing, 61
- 10-Ks vs., 61
- Tier 1 and Tier 2 capital, 293
- time value of money, 31, 201–202
- Time Warner, 113
- top-down analysis, 267–277
- key measures, 273–275
- leading economic indicators, 275–277
- overall economy, 268–273
- TRACE (Trade Reporting and Compliance Engine), 206–207, 261–262
- trade credit, 103
- trade cycle, 25, 38
- trading commissions, 361–362
- trading costs, 52
- trading patterns, 28
- trailing P-E, 148–149
- transparency, 56–57
- treasury stock, 105
- Trefis, 214
- trend analysis, 176, 183, 205, 297–312, 366
- forecasting future, 301–303
- importance of, 298–300
- index-number trend analysis, 303–304
- industry changes, 357
- insider trading, 306–310
- moving average analysis, 304–306
- stock screening, 310–312
- trough phase, 274
- Trump Hotels & Casino Resorts, 96
- Twitter, 265
- Tyco International, 158
U
- unavailability of capital, 270
- undervalued stocks, 23, 26, 38, 48, 177, 181, 194, 198, 212, 340, 360
- unemployment, average weekly initial claims for, 276
- U.S. Department of Commerce Bureau of Economic Analysis, 275
- U.S. Department of Labor Bureau of Labor Statistics, 275
V
- valuation, 22, 366
- analysts’ reports, 255
- overview, 13
- signals to buy, 176–177
- valuation ratios (multiples), 35, 136, 145–148
- dividend payout ratio, 147, 193
- dividend yield, 146–147
- earnings yield, 147–148
- price-to-book ratio, 145–146, 181, 188, 311, 320–321, 355
- price-to-earnings ratio, 35, 145, 148–153, 177, 183, 186, 188–189, 197, 287–288, 290, 311, 319, 345
- Value America, 131–132
- value stocks and investing, 47–48
- defined, 38
- fundamentals, 48
- Graham and Dodd, 47–48
- growth stocks vs., 39, 189
- index investing, 41
- origins of, 48
- price-to-book ratio, 146
- trend analysis, 183
- Visa, 49–50, 136, 150–151
- Volatility Index (Vix), 343
- volume (conviction)
- average daily volume, 338–339
- stock price charts, 27
- technical analysis, 337–338
W
- Wall Street analysts
- analyst conference calls, 238–239
- analysts’ reports, 250–256
- earnings estimates, 96
- Wall Street Journal, The, 166
- Walmart, 294–295
- Walsh, Frank, 158
- Walt Disney Company, 271
- Warner Bros. Discovery, 167
- Warren Buffett Way, The, 45
- Washington Mutual, 111
- Welch, Jack, 169
- WhaleWisdom, 310
- Whole Foods Market, 264
- Wild Oats Market, 264
- wisdom of crowds, 262
- working capital
- analyzing, 110–111
- calculating, 110
- defined, 100
- WorldCom, 111
X
- XBRL (eXtensive Business Reporting Language) format, 70–71
Z
- Zacks Investment Research, 312
- Zaslav, David, 167
- Zynga, 316
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