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for this column, I'll cover a few of the main highlights investors should watch for. This is by no means an all-inclusive or exhaustive list of all parts of financial reports investors should consider. Think of this as more of a basic checklist to get started.
Investors can always get free access to all public financial documents from the Securities and Exchange Commission's website. It's important to familiarize yourself with how to download and view companies' financial reports
3 most important numbers you look at first before considering investment:
Cash Flow from Operations (CFO): CFO is the cash generated by the company's core business activities. You want a company to generate cash from the business it operates. It sounds obvious, but there are a ton of companies that don't generate cash from operations and eventually fail.
Cash Flow from Investing (CFI): Remember the Property Plant & Equipment line from the balance sheet? When a company invests in these long-lived assets (or sells them), the cash they spend buying the asset or the cash they generate from selling the asset is recorded here. If a company is growing, CFI will almost always be negative. That's a good thing, because it means the company is investing in assets that will create profits for shareholders.
Cash Flow from Financing (CFF): CFF is the cash that is provided by or repaid to outside investors. If a company borrows $1 million, that is $1 million dollars that flows into the company, and CFF is positive. When the company repays the $1 million, that is a $1 million outflow of cash, and CFF is negative.
The first one is the company's current stand(capital)
The second one is the rate of interest they are providing(cash flow statement)
Finally whether the company falls into loss they should have the capability to repay the investors amount.
If you invest in a company, the most important thing is the bottom line. You want to know how much the company earns and whether it's boosting its sales. This can tell you whether a company is on a growth trajectory or in decline, key factors that determine how much the company is worth. A company's earnings and revenue can be compared with its stock price to tell you if a stock is expensive or reasonably priced.
There's a big difference between what a company says it earned, using accounting standards, and how much cash a company hauls in. Cash is money in hand, not the result of accounting measurements and judgment calls, as is the case with earnings and net income. When a company's net income is much higher than cash flow, investors want to be aware and find out why.
Just as many consumers got into hot water by borrowing too much, sometimes companies go overboard with debt, too. Debt isn't necessarily toxic for companies, as long as the companies generate ample cash flow to service the debt payments.
1. Cashflow
2. Growth potential
3. Profitability
ROI
Profitability
Indebtedness
