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How to Analyze a Company

A step-by-step path for reading a company, from what it does to its price.

  1. 1Step 1How to understand the businessBefore any number: what does the company do, and how does it make money?
  2. 2Step 2How to see where the revenue comes fromWhich products, places and customers bring in the money?
  3. 3Step 3How to look at growthIs the business getting bigger, and how steadily?
  4. 4Step 4How to look at profitabilityHow much of what the company sells turns into profit?
  5. 5Step 5How to understand cash flowProfit is an accounting number. Cash is what actually comes in and goes out.
  6. 6Step 6How to think about debt and cashHow much financial cushion the company has, and how much it owes.
  7. 7Step 7How to look at what shareholders getDividends, buybacks and the number of shares: what happens to the owners' slice.
  8. 8Step 8How to compare with similar companiesA number means more next to the same number from companies in the same business.
  9. 9Step 9How to think about valuationWhat investors pay today compared with what the business produces, and why.
  10. 10Step 10How to think about risksWhat could go wrong, and how much would it matter?
  11. 11Step 11How to combine metrics without relying on one numberEvery number answers one question. Understanding a company takes several.