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How do I read a company?
From revenue and profit to cash flow, balance sheets, valuation and capital allocation.
- 01Understanding companies · beginnerRead guide
What is market capitalisation?
Market capitalisation estimates what all of a company's shares are worth at the current market price.
- 02Understanding companies · beginnerRead guide
What happens when a company reports earnings?
An earnings report is a regular update on what a listed company sold, earned and expects next.
- 03Understanding companies · beginnerRead guide
Revenue
Revenue is the amount recognised from selling goods or services before related operating costs are deducted. Recognition rules determine when activity enters the income statement.
- 04Understanding companies · beginnerRead guide
Profit
Profit is what remains after defined revenues and expenses are matched for an accounting period. Different profit measures stop at different layers, so the label needs a definition.
- 05Understanding companies · beginnerRead guide
Gross profit
Gross profit is revenue minus the direct cost assigned to producing or delivering the goods and services sold. It sits before wider operating expenses such as administration and marketing.
- 06Understanding companies · intermediateRead guide
Operating profit
Operating profit is profit from the company's operations after operating expenses but before specified financing and tax items. The precise reported or adjusted definition must be checked.
- 07Understanding companies · beginnerRead guide
Profit margins
A profit margin expresses a defined profit as a percentage of revenue. It shows how much of each revenue unit remains at that stage of the income statement.
- 08Understanding companies · intermediateRead guide
Earnings per share
Earnings per share, or EPS, allocates a defined profit attributable to ordinary shareholders across a weighted share count. Diluted EPS also reflects specified potential shares.
- 09Understanding companies · beginnerRead guide
What is a P/E ratio?
A P/E ratio compares a company's share price with the earnings attributed to each share.
- 10Understanding companies · beginnerRead guide
What does valuation mean?
Valuation is the process of relating an asset's price to the cash, earnings, assets or outcomes it may provide. It produces a conditional estimate or comparison, not an observable fact.
- 11Understanding companies · beginnerRead guide
Book value
Book value is the accounting value of assets minus liabilities attributable to owners. It records recognised balance-sheet amounts, which can differ greatly from market or economic value.
- 12Understanding companies · intermediateRead guide
Price-to-book ratio
Price-to-book compares the market value of equity with its accounting book value. It shows the premium or discount applied to the recognised net assets, not whether that pricing is justified.
- 13Understanding companies · intermediateRead guide
Enterprise value
Enterprise value is a market-based estimate of the value of a company's operations to all capital providers. A common bridge adds debt-like claims to equity value and subtracts available cash.
- 14Understanding companies · intermediateRead guide
Free cash flow
Free cash flow is cash generated after a defined set of operating and investment needs. There is no single universal version, so the calculation must state what is free and for whom.
- 15Understanding companies · beginnerRead guide
Cash flow
Cash flow records cash entering and leaving a business during a period. It complements profit because accounting recognition and actual payment often occur at different times.
- 16Understanding companies · beginnerRead guide
The balance sheet
A balance sheet reports recognised assets, liabilities and owners' equity at a point in time. The accounting equation links them: assets equal liabilities plus equity.
- 17Understanding companies · beginnerRead guide
The income statement
An income statement reports revenue, expenses and profit for a period under accounting recognition rules. It explains performance, not the complete movement in cash or financial position.
- 18Understanding companies · beginnerRead guide
Financial statements
Financial statements are linked reports describing performance, financial position, cash movements and changes in owners' interests. The notes and accounting policies are part of the evidence.
- 19Understanding companies · beginnerRead guide
Assets and liabilities
Assets are recognised resources expected to provide economic benefit; liabilities are present obligations expected to require resources. Equity is the residual after liabilities are deducted from assets.
- 20Understanding companies · beginnerRead guide
Company debt
Company debt is borrowed capital that creates contractual payment obligations. It can fund productive investment, but fixed claims make the owners' remaining outcome more sensitive.
- 21Understanding companies · intermediateRead guide
Return on equity
Return on equity, or ROE, relates a defined profit for ordinary owners to their accounting equity. It measures reported earning power on that book-value base, not investment return from the share price.
- 22Understanding companies · intermediateRead guide
Return on invested capital
Return on invested capital, or ROIC, compares operating profit after tax with capital committed to operations. It asks how productively the business uses funding before owner-specific financing effects.
- 23Understanding companies · beginnerRead guide
Company guidance
Company guidance is management's stated expectation or range for future performance under current assumptions. It updates the information set but remains a forecast, not a commitment.
- 24Understanding companies · beginnerRead guide
Analyst estimates
Analyst estimates are forecasts for company measures such as revenue or earnings. A consensus combines selected forecasts, but dispersion and update timing reveal information hidden by the average.
- 25Understanding companies · intermediateRead guide
Earnings surprises
An earnings surprise is the difference between a reported earnings measure and a defined pre-release expectation. Its sign and size depend on the measure, estimate source and cut-off time.
- 26Understanding companies · intermediateRead guide
Share buybacks
A share buyback is a company purchase of its own shares. Retiring or holding those shares can reduce the count outstanding, but value depends on price, funding and alternative uses of capital.
- 27Understanding companies · intermediateRead guide
Share dilution
Share dilution occurs when additional ownership claims reduce an existing share's percentage interest or economic claim. New capital or compensation may still create value if used productively.
- 28Understanding companies · beginnerRead guide
Stock splits
A stock split changes the number of shares and the price per share in inverse proportions. By itself it does not change the company's equity value or an owner's percentage interest.
- 29Understanding companies · intermediateRead guide
Competitive advantage
A competitive advantage is a capability or position that helps a company sustain attractive economics against rivals. It matters only while it remains valuable, difficult to copy and properly exploited.
- 30Understanding companies · intermediateRead guide
Cyclical and defensive companies
Cyclical companies' demand and profits tend to move strongly with economic conditions; defensive companies tend to face steadier demand. The distinction is a spectrum, not a permanent label.