1. What does it sell and to whom?
Identify products, customers, regions, competitive advantages and regulation. Customer or product concentration can increase growth and risk together.
COMPANY READING
Start with the business and follow the numbers through to cash
Read business descriptions, customer and product mix and financial statements before news and price. Ask whether accounting earnings become cash.
ANALYSIS ORDER
Six stages for reading a company
Separate business quality, accounting numbers and market price before connecting them.
2. Where did revenue growth come from?
Separate volume, price, currency and acquisition effects. Check whether one-off contracts or consolidation changes appear as repeatable growth.
3. What is the quality of earnings?
Review operating versus net income, disposal gains, subsidies and valuation changes. Explain margin changes that outpace revenue.
4. What is the quality of assets and liabilities?
Review inventory, receivables, debt maturity, intangibles and provisions in the notes. Book value does not guarantee cash recovery.
5. Do earnings convert into cash?
Compare operating cash, capital expenditure and free cash flow over several years. Identify temporary help from working capital or asset sales.
6. How do share count and incentives change?
Offerings, convertibles, options and treasury-share treatment affect per-share value. Review controlling-owner and related-party transactions.