The Three Core Financial Statements
Balance Sheet: A snapshot of assets, liabilities and shareholders' equity at a point in time. Shows how much cash the company holds and how much it owes.
Income Statement: Revenue, expenses and net profit over a period. Key metrics: revenue growth, gross margin and operating profit margin.
Cash Flow Statement: Tracks actual cash in and out. Free cash flow (FCF) — operating cash flow minus capital expenditure — is one of the most valuable measures of financial health.
Key Valuation Ratios
P/E (Price-to-Earnings): Share price ÷ earnings per share. Higher P/E implies the market expects strong future growth; always compare within the same sector.
P/B (Price-to-Book): Market cap ÷ book value. Below 1 can suggest undervaluation — but also possible distress.
ROE (Return on Equity): Net profit ÷ average shareholders' equity. Above 15% is generally positive. Measures how efficiently the company uses investor capital.
EV/EBITDA: Enterprise value divided by EBITDA. Useful for comparing companies with different capital structures.
Sector and Macro Context
No ratio means anything in isolation. A P/E of 20 is cheap if the sector average is 30 and expensive if the average is 12.
Macro factors — interest rates, inflation, FX rates and GDP growth — affect entire sectors differently. Rising rates hurt growth stocks; defensive dividend payers may benefit.