Advanced Investing & Portfolio Management

Hello there! Welcome to Your BullGlobe Lesson

Financial Analysis Intro

Lesson 1

In this section, we discover what financial analysis is and how to getstarted.
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Table of Contents

Welcome to our pro course on investing, financial analysis, and portfolio management. In the previous introductory course, we started talking about analyzing companies and we introduced a few ways to do it. We also defined the concept of intrinsic value, which is the essence of fundamental analysis. We will learn the essentials of fundamental analysis, how to value companies, and much, much more!

Financial Analysis

In this section, we will expand a little bit on intrinsic value and we will define and exemplify financial analysis. We will also explain the importance of fundamental analysis vs technical analysis.

All the terms you see here will be thoroughly explained throughout this course, this is a good introduction to start seeing the full picture.

Financial analysis explained

What is it?

Financial analysis is the process investors and analysts go through to assess the performance and quality of a business’ financial situation.

Why is it used?

Analysts and investors perform a thorough financial analysis to evaluate if a company will or will not be a good investment in terms of profitability, liquidity, and stability prospects. In other words, it’s a great way to identify what may be good companies to invest in and to discard bad investments.

There are thousands of public companies out there, some are great and some are not so good. Financial analysis helps us discern between the winners and the losers to achieve a good portfolio.

Financial analysis can also be performed internally. A company may want to analyze its own financial situation to make better future business decisions and adjust their operations. But we will be focusing on the investor side of financial analysis in this course.

How is it created?

There are two main methods of analyzing financial information that tell us all that we need to know to perform a financial analysis.

Fundamental Analysis

This is the analysis of relevant financial information of a company to identify a company’s intrinsic value to determine if it is a good investment or not.

As we have seen in the previous section, public companies release a lot of their financial information in reports periodically (annually or quarterly) in the form of earnings reports, which are very extensive and cumbersome documents that contain tens or hundreds of pages of information about a company’s finances, operations, and prospects. However, most of the information is summarized and simplified in the three main financial statements (balance sheet, income statement, and cash flow statement).

  • Financial Ratios: we pick apart and analyze the relationship between relevant elements in these financial statements by creating ratios to assess a company’s profitability (ability to make money), efficiency (ability to use the money well), liquidity (ability to pay off debts), and leverage (how much it owes). Also, a common practice is to compare the ratios we got from a company’s financial statements to those of other similar companies (comparable analysis).
  • Valuation: we use several valuation models, which use financial statements to forecast the fundamental value of a company. These are based both on real information and on estimates and predictions, so it is important to have a good understanding of a company’s.

Technical Analysis

This method is used to try to predict future pricing behavior (e.g. price going up or down) of a security based on some statistical analysis of past pricing activity (trends, patterns…). Technical analysis disregards the analysis of a company’s fundamental financial stability, as it assumes that the market price already reflects all that public information.

We believe that a combination of both methods can be beneficial to find the right investments at the right time. But will dig into this later on.

Where can we find the information?

There are thousands of sites out there with a lot of information. Some are trustworthy and some are not, so it is really easy to let yourself go and trust some “promising” trading site and end up getting bamboozled. Therefore, it is extremely important to use reliable, well-known sources. Here we will see a summary of some of the best sources and in future sections, we will learn how to use them.

  1. EDGAR is a system administered by the SEC (US Securities & Exchange Commissioner). All US public companies (and foreign trading in the US) publish their earnings reports with the SEC, which are automatically made available for free in the EDGAR site.
    • The best place to find earnings reports with financial statement information.
  2. Yahoo! Finance is one of the best sites to find free real-time quotes, market data, financial statements and news from all over the world. It provides current and historical information about all of the asset classes (stocks, bonds, commodities, etc.), it offers amazing charting tools and a lot more at
  3. Google Finance offers similar services to Yahoo! Finance. It provides a ton of free real-time market data and news, current quotes, charting, financial statements, etc. To find it go to  or try typing the ticker “SPY” in your Google Chrome search engine. You will automatically see a summary of the SPDR S&P 500 ETF Trust (SPY) with a current quote, a chart, a Wikipedia article excerpt and the top news for the ETF.

When do they release financial information?

Most public companies release their earnings reports at the end of each quarter of their fiscal year, which may differ from the calendar year (January to December).

A company’s fiscal year is a 12-month period used for financial reporting and budgeting. For example, Microsoft’s fiscal year starts October 1st of any given year and it ends on September 30th of the following year.

The exact dates that companies release their quarterly or annual earnings reports are made public in advance and are laid out in what we know as earnings calendars (or economic calendars). You will find a great calendar by Yahoo! Finance here.

Security pricing information is updated constantly (literally). When markets are open, pricing data changes every second or even every fraction of a second. Constantly looking at pricing data can get overwhelming because there is so much of it and it changes so quickly that it is really hard to keep up.

When you start investing, it is normal to get excited and to want to look at prices go up and down constantly, which will lead most investors to make mistakes and act based on emotions. So, we recommend looking at pricing data as little as possible (maximum once or twice a day, but best once a week or a month).  

When should we perform financial analysis?

Well, it depends on your objectives, your level of involvement, and your overall strategy.

Before investing

If you are interested in a certain company, you should perform a thorough financial analysis of its most current financial statements, compare them with its past statements and with those of its peers to assess the company’s viability as a future investment. Also, looking at the overall trend of the security’s price and how it has performed compared to its competitors may be helpful to get a sense of how it has done.

Once invested

This part is really subjective and it depends on your time-horizon and strategy.

For long-term investors, we recommend taking a slightly more passive stance, updating your financial analysis periodically (at least once a quarter or every six months) in order to make an educated rebalancing and adjust to market changes.

For traders or short-term investors, you may want to be more active and analyze the performance of the security on a weekly or even daily basis to make quick decisions.

How should we start?

So far we have discussed the analysis of individual companies. But their performance and future prospects are tied to those of the broader economy. For many businesses, macroeconomic and industry circumstances may have a great influence on their profits and performance; even more than their individual performance versus their industry. So, we must keep the overall economic picture in mind.

For instance, imagine SmartPie Co. outpaced its direct competitors in the pie industry:

However, the pie industry as a whole did really poorly compared to other industries in the US. Hence, it underperformed compared to the US economy as a whole:

We would probably want to know that in order to find better opportunities in other industries.

Top-Down Approach

In analyzing a company’s prospects, it is important to take a top-down approach: 

  1. It starts by analyzing the state of the broad economic environment.
  2. From there, we can then consider the implications of the overall economy on the sector and industry in which our company operates.
  3. Then, we can drill into the individual company, its financials, and its competitors.

In this segment, we will go over the analysis of macroeconomic and industry factors that influence businesses and their financial performance. Next, we will talk about the global economy and how it affects the markets.

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