(Step by step) How to read Financial Statements : Essential Ratio analysis for Stock Investing | Tracy J | Skillshare

Playback Speed

  • 0.5x
  • 1x (Normal)
  • 1.25x
  • 1.5x
  • 2x

(Step by step) How to read Financial Statements : Essential Ratio analysis for Stock Investing

teacher avatar Tracy J

Watch this class and thousands more

Get unlimited access to every class
Taught by industry leaders & working professionals
Topics include illustration, design, photography, and more

Watch this class and thousands more

Get unlimited access to every class
Taught by industry leaders & working professionals
Topics include illustration, design, photography, and more

Lessons in This Class

9 Lessons (29m)
    • 1. Introduction

    • 2. What website are we going to use

    • 3. Income Statement

    • 4. Balance Sheet

    • 5. Cash Flow Statement

    • 6. Annual report

    • 7. Net Margin

    • 8. Return on Equity

    • 9. Free cash flow

  • --
  • Beginner level
  • Intermediate level
  • Advanced level
  • All levels
  • Beg/Int level
  • Int/Adv level

Community Generated

The level is determined by a majority opinion of students who have reviewed this class. The teacher's recommendation is shown until at least 5 student responses are collected.





About This Class

Students will learn essential ratio analysis and financial statement reading for stock investing

No prior knowledge is needed, for a complete beginner without stock investing experience or financial background.

To understand the basic of financial statements for your personal finance management and ratio analysis for stock investing.

No software is needed. All materials mentioned are freely access online. What you need is your determination to learn financial freedom knowledge.

Meet Your Teacher

Teacher Profile Image

Tracy J


Hello! I'm Tracy J., a certified Public Accountant. I would like to share with you with some skills that you need to know for stock investing.Your financial future starts here.

See full profile

Class Ratings

Expectations Met?
  • Exceeded!
  • Yes
  • Somewhat
  • Not really
Reviews Archive

In October 2018, we updated our review system to improve the way we collect feedback. Below are the reviews written before that update.

Why Join Skillshare?

Take award-winning Skillshare Original Classes

Each class has short lessons, hands-on projects

Your membership supports Skillshare teachers

Learn From Anywhere

Take classes on the go with the Skillshare app. Stream or download to watch on the plane, the subway, or wherever you learn best.


1. Introduction: Hello, everyone. Welcome to the class. I'm Tracy. I must certified. Public accountant discusses for everyone off you. This is interested in start investing but don't know where to start with. If you know nothing about storm our kids Financial analysis Oh, with no any former financial educations don't were weak. I will walk through with everyone step by step to heavy fair in Asia Analysis point company We all start from Syria. It's never too late to learn. I'm happy that you click into this video. That means you have to intentions to learn something new. I think the financial education is so important for everyone and ask you to re financial statement is so important for a start investing. I was shared with you more tree material at the end of this clause. As long as you want to learn and keep at if earning, you will find many. Resource is in the Internet. Your future start here's to be in financial independence. As we all know, you need multiple income stream. That's his earned income, passive income and portfolio income. So let's start with before your income to date for your learning. The A listed company for your analysis for the whole cost. And if I knew the stock? Oh, off the company. Any listed company picture one that you're interested in such. It will be easier for you to understand their business model. And how does the company generate income? Get ready. See, you are in next class. 2. What website are we going to use: Hi, everyone. Welcome to the class. Last time during the introduction class, I have asked you to pick a listed company for furniture analysis. So which one do you pick? I chose my key for my analysis with so called a K E and listed in new your star exchange market. And right now I'm going to introduce you a very useful website. Morning Star Morningstar is a global financial service firm. Before us, a person, though investor. We can't ss to dare free evil missions for financial analysis. So right now in the search box research Morning Star, Nike and for the first we so Nike quote, we click. We can see some basic informations on the first page saying We want to make sure where that this Nike is when Mikey that I refer to so which had to back one here. Kiss this. Nike is the Nike that are before, too. This website provides informations for all listed companies for all stock market. No matter the London Stock market order Japan's stock market, for example. We can change the same motor and we find the same older has defeated in Sir ful places and Thies to a listed in U. S stock market. So I think this is a very powerful website. Have you find a page for your company? If yes, stick with the page. We're going to have financial analysis for the company in the next class. Stay too by buying. 3. Income Statement: Hi, everyone, welcome back to the class before we start looking into financial analysis. This told about some basics. Our financial statement, which is income Statement by sheet and Castro statement. First we talk about income statement. What This income statement Income statement is a financial statement. This summarized revenues, courses and expenses incurred during a specific period for interim report. This is a six month thinkers. 40. Any report? This is a year ticker. The main purpose off an income statement is to confidence detail, off preferred abilities and business activities off the company. It begins with an entry for revenue as the top line and substrate that cause off doing business, including the cause off. So operating expenses, test expenses and interest expenses. So they see the financial statement off Nike, the company that I chose. We see here from the top lie, receive revenues, costs of grueso. Then we have gross profit. Then we see total selling and administrative expenses. He come test expenses and net income. So this is some basics off income statement we will introduce appreciate in their necks class. See you next class by buying 4. Balance Sheet: Hi, everyone. Welcome back to declasse. We have to discuss about income statement in the last class. So we're going to talk about ban sheet in this class. What? To spy on sheet man. She is a financial statement. Then repose a company's SS liabilities and shears Holder equity a specific point in time. We see the formula here ss equal to liabilities and equity. So what? This does mean these formulas. So all the things is owns means SS, which your idea by boring money means taking on liabilities or taking me from investor means Issuing shares holder equity. So take a person is an example, SS Is your home your car or jewelries? Just everything. Thank you. Oh, how did you acquired in Adam with liabilities or equity liabilities like home mortgage and car loans or car credit card loans? So what the sys left is equity. How about definitions? Are s EZ an SS is a resource is with economic value in corporations, owns with the expectations that it will provide a future benefit. An SS is that er Curren is's or long Corin Is's Curtis's, which can be convert to cash in one year or less. other than current nous. Is that a long Curren icis? So what's this liberties? My abilities are defined as company legal Financial obligations arise during the course off the business operations libraries. He's also loom as current or loan current depends on to content. Current liabilities are Dota due within one year and are listed in all off in order off their due date. Known current liabilities due at a any poll after one year. So that to our example Nike, we see the banshee here. We see cash and equivalents shall turn investment. I can't be suitable. Even trees, pre pre expenses and other current SS. And we have to some off current SS, then the remaining SS are non current. We have property, plant and equipment. Intangible s says good will de for income testes else is it? We have current liabilities. We see current potions off loan turned depth nukes parable. I can't payable our current liabilities income test Pierre Boulle. Then we have known current liabilities, which is a long time. Therefore Nike case just I reminder the income statement record the financial resource for a period of time. Rearrest to plan, she recalled. Teresa escape specific point in time like you're in. So this is some basics about Brian Sheet. We're going to talk about Castro statement in next class. See you in next class by buying 5. Cash Flow Statement: Hi, everyone, welcome back to the class we have discussed about income steam, um, and Banshees before we're going to talk about cash flow statement in this class, What is Castro's demon? The cast roast statements summarized German off cash and cash equivalents entering and leaving a company Castro Stamen measures. How will a company generates cash to pay is step obligations and fun is operating expenses . There is three main components off Castro's demon, which were kept from operating activities. Cash from investing activities and cash from investing activities. Cash from operating activities we fled. How much cash is generated from a company's product. As for cash from investing activities is in cruise any sources and uses off cash from a company's investment. Cash for cash from financing activities is in cruised to sources off cash from investors or banks. All the uses off cash pay to shareholders. They see our example. Nike. For Nike, we see cash flow statement. Here. Cash roe is calculated by making certain adjustment to net income by editing or substrate ing known cash item. He see their non cash item here in credit transitions resulting from transitions that occur from one period to the next we see net income right here in the cash flow statement. Ain't we find this net income in income Statement. Thesiger can't be tied. Then we go back to Castro statement. This part is non cash item then adjusting your credit transitions movement off this period which is the movement off working capital movement. Then we have to cash in flow from operating activities. This part is investing activity. We see purchase property right here. Then we come off with a cash. Oh, from from investing activities. As for this part, is financing activity receive repayment off nooks payable reproach Chase off Come and stop and dissident paid and we come up with a cash also then some off a cash row from all of these three activities. We have a cash cash cash inflow in 2019 and together with the cash and cash equivalents at D, beginning off year, we find out a cash and cash equivalents SST urine. We see the faker here. Then we can cross stratification. Cash equivalent thicker with the by. She here we find the cash and cash equivalents thicker. Can be time with state cash flow statement. Very mine. Castro statement desisting from de income statement and by she because Bo off then Rick Achter incoming and outcome incoming and outgoing. Kish there has been record on credit. Therefore, cash is not the same as their income. So overall, for the last three lessons we have talked about income statement by she and Castro's demon . You may have a question so far. When can we find her in any way? Part off a company? I will show you in UNIX class. Stay tuned. Bye bye. 6. Annual report: Hi, everyone. Welcome back to the class. As I mentioned it in the last class, we're going to find the any report off a company during this class for our example. Ned, keep you can simply search any report. Nike 2019. Thank you. Can see the resell here and click. Then we have to report. Or you can find any report at the company's website. Go to investor, then we see news events and reports here. Then any report, then tank a report. The report is the same. Reso s to search. Burn a phone. 10-K is in any report required by the U. S. Securities and Exchange Commission's. This gives a comprehensive summary off a company's financial state performance. There should be something similar for your country. We can see different sessions here talking about the company business performance in different markets. Then we go to item eight. Financial statement damiz rolled down. We find the income stamen, body sheet and cash flow statement. We can see one more example. Let's find the anyway part off EPO. Go to investor relations, not the quarter reso. We find any report right here also go to item eight, then We can also find the financial statement burn and she and Castro statement So project after day Please find out the latest any report off the company that you chose and located Financial statement within. You can always find a any report at the company's official website. We will start looking into racial and eyes is in next class. Stay to see you in next class. Bye bye. 7. Net Margin: Hi, everyone. Welcome to the crust. We will start looking into ratio analysis from this class. The ratio that I introduced today. It's net margin before we talk about net market. We have to tell about gross margin. Cross margin is the company's their self dressing you minus is Kosaku. So in other words, it is the sales revenue company readings. After incurring the derrick horses associate it with producing the Bruce like direct neighbour factory rental from material Fred Tree overhead. So what does net margin? We see the formula here. This is calculated by that revenue that profit over revenue in percentage revenues have struck the costs. Of course, so's this is scrolls, margin substrate, operating expenses, such a selling it in the streets of expenses, interest on deck and testes. Then we have net pulls it. Then we did find the net profit by revenue. So let us find out their profit margin off my key in the Morning star page. In case you don't know how to find out the morning star page for your chose company but a company that you chose please go to the PV years. Feed your class off What website are we going to use? So we go to the key ratio, go to the food key racial data. Then we see many figures here for different years. Interesting that Nike has their financial year end in May May for every year. Most company have their year at the month off quarter in March, June, September and December and we revert to this 2019 column this record after financials data starting from June 2018 to May 2019. What does the financial year 2018 before, too? Yes, you're right. This referred to June 2017 to May 2018 and we see U. S dollars. I hear that means the figures in U. S. Dollar this final what distant margin percent take we find out after detecting the costs off. Also, the gross sport. The gross margin is 44 paws 67% and net margin is 10 posts 3%. That profit abilities is an important distinction, since the increase in revenue do not in must to translate into increased profitability when you increase in sales revenue. But the cause off operations are waiter revenue generated by the increasing sales income they will need to a decrease in pulp. Imagine what is the net margin off 10.3 for Sinclair or No, we can make decisions. Beats only single factor figure We have to compare with p Veers years across the country. We see there last year, figure a wobbly about 10% the last few years figures at around 10% except year 2018. And we had to compare Nike with the company as close their country to industry such as Edit this humor or Lululemon. So approach it off to date. Finally in laters. Net margin off the company's in their spot where industry and do the same for your company . For the confident that you chose and relative companies in the industry please share to resell with me, we're going to discuss and other ratio in next class. Stay tuned by buying 8. Return on Equity: Hi, everyone, Welcome back to the class. The ratios that I introduced today is return on equity. Return on equity. We see the formula here we turned on equity is equal to net income. Defined shares. Holder equity means how much profit did a company earned for every dollars that the companies invest with their equity? We turned on equities measures The poverty abilities offer corporations in relations to shares Holder equity. What is equity that we have mentioned in their in their in their introductions to financial statement? Class SS minus liabilities equal to equities. So we go back to our example Nike and we serve. We turn on equity. We have to figure 42.74% for year 2019 in general. Figures over 20% is a nice thicker so 42.74% is a really nice vicar, but we can't just refer to our single year figure. We have to see the figures for P fears the years as well, and for Nike, their figures. It's roughly about 20 something we turned on. Equity is a very good indicator when comparing firms off the same industry, since his tends to give accurate indications off which company operating with greater financial efficiency. The higher the return on equity, the more efficient the company's management issue. Generating income with his equity financing investor could trenching just a management's performance over years. Where did it company do it better drops in the market, then the industry and then p fear. See years? Okay, project off Today Final de NATO's Return on equity for Companies in the Spot We're industry and do the same for the company that you chose and also return on equity for the relevant market. Please share your result with me. We're going to discuss and out of racial in next class. Stay two by buying. 9. Free cash flow: Hi, everyone, Welcome back to the class. The items that I introduced today is free cash flow. We have discussed profit and cash row into financial statement class and profit is not equal to cash row profit is so on an income statement and equals two revenue minus the expenses associate with earning income. And for Castro Castro, we first to the movement of money into an off the business. What is free cash row? We see the formula here. Free Castrol represents the cash it companies generate after accounting for cash Afro to support operations and maintain is capital SS a profit? The book company does not guarantee every cash row a profitable companies can be a negative Castrol companies if the company do not generate enough cash for their operations. Activity if their purpose a tie up in accounts receivable by extending for their credit period to adapters to boost sales or tying up in infantry. But Bo purchase too often this comes from predators or if a company spent too much on capital expenditure, free cash rose accounts for changes in working capital, you can provide important insights into the value of a company and health office fundamental trends. Free casual is also helpful as the starting place for potential share solder. If l. A. How likely their companies will be able to pay their expected diffidence If theory is no much free Castro for the company, this is no very likely for the companies to pay their diffidence for to come for the shareholders. So let's check the figure it for Nike again. Mauling Stop age. We serve free cash roles in this search bar for year 2019. The figure is positive and positive for P veers years. You may ask how to define good cash row. We should focus on the train wanted in the absolute values are free cash flow Well, a positive free cash flow in general, but even we have negative free cash flow for a particular year. We can conclude that this company is poor iniquity. We have to find out the results this coaster negative cash row. Maybe the company invest in that some you can't do it expenditure or in research and development costs such we may expect an increase in efficiency, nor tell a logic advancement in the future. She's good for the company. Internal one burying my when we analysis a company. When we analyze it company, we have to see a whole picture wanted and focusing on a particular year or particular figure. A single figure can tell the truth. So project off the day Final Waited. A company that you chose has often a positive cash flow for the latest financial year and the trend. And if the company has negative free cash flow for particular year, what are the reasons behind? Please share to resell with me? We're going to discuss an outer ratio in next class. Stay tuned. Bye bye.