BG Interpretation of Financial Statements

1. Understanding the Income Statement and the Balance Sheet

Income Statement - focuses on the revenue and expenses

Balance Sheet - snapshot in time ; assets and liabilities

2. Industry Specifics (are useful when considering the fundamentals of the company but beware if the
numbers are healthy or not)

Net Margin = (Net Income/Revenue * 100) ; tells you how much money that's left for potential
reinvestment or redistribution to shareholders

Current Ratio = (Current Assets/Current Liabilities) >2 ; indicator if the company can pay its short-term
obligations or not

P/B - Ratio = (Market Cap/Total Value of the Balance Sheet)

3. Watered Stocks - tendency to overstate value in the financial statement and balance sheet

4. Liquidation value of a firm (when a stock is priced lower than its book value, one must take a closer
look that will be a great opportunity)

Intrinsic Value:

Book Value = Assets - Liabilities ; Book Value > Market Cap

3 Guidelines

1. Current Assets > Fixed Assets ; bad bargaining position in the event of liquidation

2. Assets will probably be valued lower than market value

3. Characteristics of assets must be considered

5. Expected returns of the quantitative investor

1. When companies look cheap according to their financial statements only sell when they look
expensive will not make a great return

Filter out companies with healthy financial statement and ratio, market trends, competition, and
scalability will make a great return