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How to conduct financial analysis on US and Hong Kong stocks

How to view the financial reports of US listed companies

Every company listed on the U.S. stock market releases its financial report every quarter. No matter the size of the company. Log in to the website of the Securities Regulatory Commission https://www.sec.gov/ to find all the information of US stock companies. Then use the search engine to query the stock codes of US stock companies. The SEC stipulates that each listed company needs to submit a unified FORM file when publicly disclosing various information, click the “Forms” option in the figure. In addition, the announcement submitted by the US company is called SEC-Filing, which is the document submitted to the SEC. Different files (Filing) have different code names. Click on “FB Filing”. You will see various SEC filings. The documents are 8-K, 10-Q, S-8, 10-K.

8-K: The filing report of a listed company, which is required to be submitted when a major event occurs in a listed company. For example: acquisition offer, acquisition completion, earnings report, etc.

10-Q: Quarterly report. Includes latest common share count, latest warrants, financial information and more.

S-8: Employee Stock Ownership Presentation.

10-K: Annual Report.

Filter the files to be searched by “Filing Type”.

How to understand the three financial analysis statements income statement, assets and liabilities and cash flow statement.

1. Income statement

operating income

Operating income is the most important. If the operating income continues to grow, but the profit does not increase, the value of this enterprise must be revalued. Under normal circumstances, companies will first see the improvement of income, and then the growth of profits. Revenue is more real than profit, price-to-sales ratio is more effective than price-earnings ratio, and revenue is faster than profit, reflecting the real situation of an enterprise. Cost of revenue, this indicator directly represents the cost of product sales and production. Divide revenue cost by total revenue to get cost as a percentage of total revenue. It is not enough to observe the ratio of revenue cost to total income in one year, but to observe the data of adjacent years. Looking at the percentage of each year, the consistent and continuous performance of the percentage is a good phenomenon, which represents the stable operation of the company.

gross profit

Gross profit, total revenue minus cost of revenue, is gross profit, gross profit divided by total revenue. Gross margin compared to competitor’s gross margin. The higher the gross profit margin, the more profitable the company is and the better it operates. Track changes in gross profit margin and see historical conditions. Gross profit margins that are too high will not last, nor will gross margins that are too low. A company has stable performance with a low gross profit margin. Once the price rises, the profit increase will be very obvious. Conversely, if the gross profit margin is too high, the company’s performance has stabilized, and industries with stable gross profit margins will be sought after by investors. Pre-tax income represents the company’s income before taxes are paid. The following represents the net income, minus the pre-tax income, which is the amount of tax paid by the company that year.

2. Balance sheet

A balance sheet is a table about assets and liabilities, the first part is assets, and the second part is liabilities. Among them, assets are divided into current assets and non-current assets, and liabilities are also divided into current liabilities and non-current liabilities.

assets

The most basic formula, assets equals the sum of liabilities and owner’s equity. To refine the total property, we can see the current property and non-current property,

Current property, which includes cash, cash equivalents, accounts receivable, and inventory. . In non-current property, PPE refers to real estate, plant and equipment, which are specific and physical properties, such as land, machinery, houses, vehicles, etc.

Good is goodwill, which is the potential economic value that will bring excess profits to the enterprise economy in the future. This money can also be used to make corresponding acquisitions to provide the strength and popularity of the enterprise.

debt

Liabilities and accounts payable are the bills that the enterprise should pay to the supplier for the purchase of materials and supplies or the supply of labor services. Current liabilities are debts that the company needs to repay over the next year, so they will be paid off in the short term. Long-term liabilities of an enterprise are debts that will be repaid in the next few years and cannot be cleared in the short term.

Owner’s equity refers to the remaining equity enjoyed by the owner after the assets of the enterprise are deducted from the liabilities.

The company’s owner’s equity is also called shareholder’s equity. It is the asset of the enterprise. The part enjoyed by the owner after deducting the creditor’s equity can reflect the maintenance and appreciation of the owner’s invested capital, and it also reflects the concept of protecting the creditor’s rights and interests. Surplus is extremely important. It represents that the company’s accumulated equity has not been distributed to shareholders in cash or other assets, and has been converted into capital. This amount is cumulative, and theoretically the numbers grow together.

3. Cash flow statement

cash flow from operating activities

Depreciation expenses refer to the depreciation expenses of fixed assets owned by enterprises calculated according to certain usage conditions. For example, the research and development of new products must introduce some equipment for operation and research. Over time, the equipment will become old and lose its original value. Next, Change in receable is generally a negative number, which means that the company has more accounts receivable than cash. Similarly, the liability in Change in liability is the money owed by the company. So this money has to be subtracted from the net profit, because this is the money to be paid to the corresponding company, such as the supplier.

The net operating cash flow can be calculated by the following formula. The annual net cash flow is equal to the annual operating income minus the cash payment cost, and then minus the income tax. Or net cash flow per year equals net income plus depreciation. Operating cash flow can best reflect the company’s ability to continue operating and its future development prospects.

Cash flows from investing activities

It reflects the cash flow generated by the company’s investment activities in fixed assets, and it reflects the company’s purchase and sale of fixed assets and marketable securities, as well as the functions of mergers and acquisitions and development of other companies. For a company that is constantly expanding its reproduction, investment cash flow is often negative, but this indicates possible growth in the company’s future performance. If the company wants to grow in the future, it must first invest and spend money.

Cash flow from financing activities

It reflects the cash flow status generated by the company’s financing activities, and also reflects the ultimate in channels such as the company’s issuance of stocks and bonds. Dividends paid shows a negative number, indicating that the company has paid the corresponding dividends to shareholders.

If the number of treasury shares is an integer, it means that the company has issued shares and shareholders have paid cash to the company. Now if we add up the total of each of these three cash flows, we get CCE, which is cash and cash equivalent, which reflects the company’s cash flow.

The periodic reports of listed companies disclose three main sheets: balance sheet, income statement and cash flow statement. A listed company has subsidiaries that it can control and will also disclose a consolidated balance sheet, consolidated income statement and consolidated cash flow statement.

Since the consolidated financial statements reflect the overall situation of listed companies and controlled enterprises, we can focus more on the use of consolidated financial statements.

The difference between quarterly report, interim report and annual report

Financial statement components:

Quarterly report (published within April)

Mid-year report (semi-annual report, released within August) quarterly report (released within 10 days)

Annual report released within 4 households)

The annual report must be audited, and the annual report is generally considered to be the financial statement with the highest analytical value.

Analysis of Notes to Financial Statements

The notes to the financial statements are the explanations and supplementary explanations for the relevant items of the financial statements in order to help the readers of the statements understand the contents of the financial statements in accordance with the provisions of the “Accounting Standards for Business Enterprises”. The notes are an integral part of the financial statements. The business details of the company are all in the notes. In the future, the notes will become more and more important, and the numbers will be more and more underestimated.

The notes are the most detailed explanations and additional explanations of the contents of the financial statements. It is impossible for the financial statement itself to write everything in detail, with limited format and limited content. The notes to the financial statement are supplementary explanations for the content and items that the financial statement itself cannot or cannot fully express.

How to Comprehensively Analyze Financial Statements

1. Collect financial data:

Obtain the financial statements of the target company, including balance sheet, income statement and cash flow statement. These data can be obtained from public financial reports, financial databases or official company websites.

2. Conduct fundamental analysis:

Fundamental analysis is a key link in evaluating a company’s financial health and operating performance. By comparing and analyzing financial data, we can understand the company’s profitability, growth potential, capital structure and risk factors.

3. Profitability analysis:

Analyze a company’s revenue, gross margin, net profit, and earnings growth rate to assess its profitability and profitability.

4. Growth Potential Analysis:

Investigate the company’s revenue growth rate and related indicators, such as market share, product innovation capabilities and expansion plans, to assess its future growth potential.

5. Financial stability analysis:

Analyze the company’s debt level, solvency and asset-liability ratio, and evaluate its financial stability and risk tolerance.

6. Cash flow analysis:

Pay attention to the company’s free cash flow and cash flow situation, and evaluate the company’s operating activities and capital management.

7. Compare with the same industry and competitors:

Compare the financial data of the target company with its peers and competitors. This helps to understand the company’s position in the industry, its relative strengths and competitiveness.

8. Formulate financial indicator system:

Based on analytical goals and needs, select and calculate appropriate financial indicators to evaluate company performance and risk. For example, price-earnings ratio, price-to-book ratio, net profit ratio, return on assets, etc.

9. Conduct trend analysis:

Observe and analyze the development trend of the company by comparing the financial data of multiple years or quarters. This can help detect potential changes and risks.

10. Interpret the analysis results:

Based on the above analysis results, evaluate the company’s financial status and prospects. Evaluate its investment value and risks, and make decisions in combination with other relevant factors (such as macroeconomic environment, industry prospects, etc.).

It is important to note that financial analysis is only one of the tools used to evaluate a company. When making investment decisions, in addition to financial data, other factors should also be considered comprehensively, such as industry development trends, management teams, competitive environment, and macroeconomic factors.