Understand a company
Follow these articles in order, or open any explanation on its own. Each step includes examples and a question to check your understanding.
Browse the full library →- Step 1 · Concept explained
What Is a Stock?
A stock represents an ownership interest in a company. Its price is what buyers and sellers currently agree to exchange that interest for; ownership does not promise a dividend, a fixed repayment or a profit.
- Step 2 · Concept explained
What Is Market Capitalization?
Market capitalization is a company’s share price multiplied by its outstanding shares. It measures the market value of equity, not the sticker price of one share or the total cost of acquiring the whole business.
- Step 3 · Concept explained
How Financial Statements Fit Together
The income statement reports operating results over a period, the balance sheet reports a financial position at a date, and the cash-flow statement explains movements in cash. Reading them together helps separate accounting profit, financing and actual cash movement.
- Step 4 · Concept explained
Earnings, EPS and Guidance
Earnings describe reported profit for a period. Earnings per share relates profit available to common shareholders to a share count. Guidance is management’s forward-looking outlook, not a reported result or a guarantee.
- Step 5 · Concept explained
Why Stocks Can Fall After Good Earnings
A stock can fall after strong earnings because its price reflects expectations about the future, not just the reported quarter. Results, guidance, valuation and what investors had already anticipated can point in different directions.
- Step 6 · Concept explained
What Is a P/E Ratio?
The price-to-earnings ratio divides a share price by a stated earnings-per-share measure. It expresses how much market price corresponds to a unit of those earnings, but it does not establish fair value on its own.
- Step 7 · Theory explained
Discounted Cash Flow Explained
Discounted cash flow estimates value by translating expected future cash flows into present value using a suitable discount rate. The calculation is conditional on forecasts, timing, risk and the kind of cash flow being valued.
- Step 8 · Research method
Building an Investment Thesis
An investment thesis is a testable explanation of the business or market conditions that support a view. It connects evidence, assumptions and valuation, and identifies developments that would weaken or invalidate the interpretation.