Analyze stocks like a professional investor
Analyzing stocks is both art and science. Learn the frameworks professional investors use — from reading financial statements to valuing companies with the right metrics.
The Three Financial Statements
Every public company publishes three statements quarterly. Together, they tell the complete story.
| Statement | What It Shows | Time Frame | Key Line Items | What to Look For |
|---|---|---|---|---|
| Income Statement | Profitability | Quarter / Year | Revenue, EBITDA, Net Income | Growing revenue, expanding margins |
| Balance Sheet | Financial health | Point in time | Assets, Liabilities, Equity | Current ratio >1.5, low debt-to-equity |
| Cash Flow | Real cash movement | Quarter / Year | Operating, Investing, Financing | Strong free cash flow, positive operating |
💡 The #1 Metric
Free Cash Flow (FCF) = Operating Cash Flow minus Capital Expenditures. This is the truest measure of a company's financial health because it shows the actual cash available to shareholders, pay dividends, buy back shares, or reinvest. A company can manipulate earnings, but cash flow is much harder to fake.
Valuation Metrics — The Complete Guide
| Metric | Formula | Good Range | What It Tells You |
|---|---|---|---|
| P/E Ratio | Price / Earnings per Share | 15-25 (varies by sector) | How much you pay per euro of earnings |
| P/B Ratio | Price / Book Value | < 3 (under 1 = potential value) | Price relative to net asset value |
| EV/EBITDA | Enterprise Value / EBITDA | 8-15 (compare within sectors) | Company value relative to operating earnings |
| PEG Ratio | P/E / Earnings Growth Rate | < 1.5 (under 1 = undervalued) | P/E adjusted for growth — the GARP metric |
| Dividend Yield | Annual Dividend / Price | 2-5% (varies) | Annual income as percentage of investment |
| FCF Yield | Free Cash Flow / Market Cap | > 5% | Cash generation relative to price paid |
| ROE | Net Income / Shareholder Equity | > 15% | How efficiently the company uses equity |
| Debt/Equity | Total Debt / Equity | < 1.0 (conservative) | How leveraged the company is |
Sector Average P/E Ratios
Always compare valuations within the same sector. A tech stock at P/E 30 might be cheap, while a utility at P/E 30 is expensive.
Technical Analysis Basics
Use technicals to time your entries, not to select stocks. Key concepts:
| Indicator | What It Does | Bullish Signal | Bearish Signal |
|---|---|---|---|
| Moving Averages (50/200) | Smooths price, shows trend | Price above both MAs | Price below both MAs |
| RSI (0-100) | Measures momentum | Below 30 (oversold bounce) | Above 70 (overbought pullback) |
| MACD | Trend direction & momentum | MACD crosses above signal line | MACD crosses below signal line |
| Volume | Confirms price moves | Breakout on high volume | Rally on declining volume |
| Support/Resistance | Price floors & ceilings | Bounce off support | Break below support |
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