Do you ever feel just a little overwhelmed when you’re about to dive into a company’s
financial statements?
The sheer volume is upsetting…
And honestly, this is the one I just went through and it is actually smaller than most...
Well, in this video, I walk you through step-by-step how to confidently navigate this intimidating
cluster…
Alright, I said it last time and I’ll say it again: it’s so good to be back!
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After my last video, I heard you loud and clear, you want more clips from the Empowered
Stock Selector course.
That’s awesome!
I’m excited to share!
Especially this one, about how to efficiently navigate this mess…
I remember how I felt as a new investor.
I knew I was supposed to review financial statements, but I didn’t really know how.
I didn’t know where to start.
I’d just try to read them like a book.
I didn’t know what I was looking for.
Well, if any of those check off any boxes for you - if it sounds somewhat similar to
how you feel when you're faced with this…
...then I am incredibly excited to share this with you: step by step, exactly what I look
at and when.
Get ready to take some notes and use this the next time you’re sitting down for a
leisurely financial statement review.
Cue the clip…
So now, at this point, that's when I recommend you give the company's financial reports a
thorough rundown.
Pull up and print off the company's most recent 10K, 10Q, conference call transcript (you
can find all that on Seeking Alpha), also if you can find old shareholder's letters
from previous annual reports, those can be useful here as well.
Most lay investors are not doing this, even though they know they should.
In fact, I bet many professionals don't actually do this... but although it’s intimidating
at first, it doesn’t have to be THAT hard.
Here's what I recommend you do:
Review the conference call to see what management is focusing on.
Go through all the questions that are being asked by analysts and investors—this can
give you some great insight into the concerns that others are seeing with the company and/or
industry, questions that you too may want answered.
Then, pull out the most recent 10K.
These can be overwhelming documents, sometimes hundreds of pages long.
Just remember, the longer they are, the fewer people there are that have actually read them,
so there's more opportunity for you to have an advantage, for you to understand something
that others don’t yet.
And remember: this is your money we're talking about.
If you want to be successful long-term, you need to give yourself every opportunity to
succeed (and that may mean suffering through a lengthy 10K).
Now, I print these documents out, so that I can mark them up and retain the information
better (I recommend you do the same).
I also tend to have them up on the computer, just in case I want to Control F (the find
feature on my computer) a certain term in this massive document.
Ultimately, you're going to at least skim the entire thing.
But you can start with some of the more important "items."
Again, if there are problems, let's find them as soon as possible, so we don't waste any
more time.
I recommend starting with Item 1.
Read the company's description of what it does.
By now you know this.
Just make sure it aligns with what you were thinking and that you understand it and the
industry.
If you don't understand it at all, you should not be investing here.
If you have a question or two about it, and you can't find the answer online, record it
in the "questions/concerns" box in your workbook, we'll deal with it in the next part of this
lesson.
Then, jump to Items 6 and 7.
Thoroughly review all the financials.
Make sure the numbers you've been working with are indeed correct.
Make sure the cash flow statement makes sense to you.
For example, if most of the company's cash flow is coming from investing activities instead
of operating activities, that may not be sustainable.
Take special care to review and understand all the footnotes to the financials.
Next, examine the "risk" factors outlined by the company.
Many of these will be generic, but some will be very specific to their company.
Pay attention to those.
Sometimes underlying management concerns will be discretely manifest here but not publicly.
Think about it, that way, if something does happen, they can point to that line item and
say, "see, we were aware of it and trying to address it...!"
Also, this is where the company will note if they generate a significant portion of
their revenue from only one or two customers.
Obviously, that would increase the risk involved significantly, so pay attention to those type
of company-specific risks.
Look at the "legal proceedings" section.
It is not uncommon for large companies to have several outstanding lawsuits against
them.
They are almost always downplayed publicly but they're given a more direct treatment
here (for a similar reason as I mentioned with the risks).
Anything listed as potentially having a "material" impact should be examined thoroughly before
investment!
If the company has a "properties" section, that can be a great place to find hidden assets
not really being considered in the market's current valuation of the company.
This could be valuable for your sum-of-parts analysis or could come into play when considering
the potential downside; as in, the stock might drop below a certain point, but YOU know this
asset is there as well and will be worth enough to ultimately support a higher price.
After you've been through all of those parts, AT LEAST skim everything else.
Know what each paragraph is about.
Then, if there has been a 10Q since that 10K, skim every paragraph of it as well, including
(especially) the financials.
Make note of any additional questions or concerns you have as you read through everything.
If relevant, I'd recommend recording the page and paragraph.
If you were able to dig up old shareholder's letters (not all companies produce these since
they’re not required), I recommend reading through the promises that were made each year.
I'd even go back 10 years if you can find them and if the management is the same.
Annual reports and shareholder's letters are meant to paint the company in a good light,
so you should always read them with a grain of salt, BUT if you get the opportunity to
read them like this, they can be incredibly insightful.
Does management have a history of living up to its promises?
How should you feel about what they're currently promising?
Alright, I know that was a lot - it was dry just talking through it...
Ah man, if I were just getting started, that would have saved me so much time to know how
to work my way through all this (I picked it up!).
That doesn’t mean you HAVE to do it exactly like this.
But now you have a starting point - instead of just some general counsel: go read the
financial statements!
What’s the most important thing you look for when you go through financial statements.
Let us know in the comments.
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start investing smarter with us on the regular.
And if you want to learn more about The Empowered Stock Selector course, go to InvestLikeSpicer.com
- that’ll cue into what’s going on right now.
As I RELEASE this video, we’re just launching and will be closing the cart mid-December
and I honestly do not know when we’ll launch again.
And if you missed that window, you can go to that site to jump on the waitlist.
So, if you’re interested at all, head on over, if not… that’s okay!
It’s not for everyone.
I’ll still help you over here as much as I can.
I sincerely wish you all the best.
Take care!