Understanding Financial statements

&
How to pick a stock

By
N.Nikhil sai
Financial statement:
Financial statements are formal records of the
financial activities and position of a business, or
other entity.
Purpose of Financial Statements:
provide information about
1.results of operations
2.financial position
3.cash flows of an organization
Users of financial statements
1.Company management
2.Government
3.Lenders and Creditors
4.Investors(owners)
5.Employees
6.Customers
7.Tax authorities
8.Analysts
What are Financial statements ?
1.Income Statement
2.Balance Sheet
3.Statement of cash flows
4.Notes to accounts
5.Statement of changes in equity
Cashflow Statement:
1.Cashflow from Operational activity
sales, purchases, salaries, etc
2. Cashflow from Financing activity
loan, dividend payment, equity
3. Cashflow from Investing activity
investment in asset,stocks of other
company
 Part-2
how to pic a stock
 How to analyse stock

Technical analysis Fundamental analysis

Previous charts, Graphs Fundamental analysis concern
Technical analysis is only interested in the with “what a stock is really worth”
record of the stock’s price
Fundamental Analysis Determinants:
Determinant-1:The expected growth rate
Price-high, when growth and earnings high
A rational investor should be willing to pay a higher price for a
share the longer an extraordinary growth rate is expected to last.
Determinant-2:The expected dividend payout
Determinant-3:The degree of risk
A rational (risk-averse) investor should be willing to pay a higher
price for a share, other things being equal, the less risky the
company’s stock.
Determinant 4: The level of market interest rates
Interest rates high ,stock price low
Note:
1.Expectations about the future cannot be proven in the
present
2. Buy only companies that are expected to have
above-average
earnings growth for five or more years
3.Buy only stocks which have moderate P/E RATIO-
Earnings/Market Price of share
4.Select stocks based on high earning yield
Dollar cost averaging –saving fixed amounts of money
periodically(Compound effect works)