Determine the strength of any business with fundamental analysis Have you ever wondered the key to multibillionaire Warren Buffet's five-decade run as the most successful investor in history? The answer is simple: fundamental analysis. In this easy-to-understand, practical, and savvy guide, you'll discover how it helps you assess a business' overall financial performance by using historical and present data to forecast its future monetary value—and why this powerful tool is particularly important to investors in times of economic downturn. It's more important than ever for investors to know the true financial stability of a business, and this new edition of Fundamental Analysis For Dummies shows you how. Whether you're a seasoned investor or just want to learn how to make more intelligent and prudent investment decisions, this plain-English guide gives you practical tips, tricks, and trade secrets for using fundamental analysis to manage your portfolio and enhance your understanding of shrewdly selecting stocks! Predict the future value of a business based on its current and historical financial data Gauge a company's performance against its competitors Determine if a company's credit standing is in jeopardy Apply fundamental analysis to other investment vehicles, like currency, bonds, and commodities With the help of Fundamental Analysis For Dummies, you just may find the bargains that could make you the next Warren Buffet!

Table of Contents:
Introduction 1 About This Book 2 Icons Used in This Book 2 Beyond the Book 3 Where to Go from Here 3 Part 1: What Fundamental Analysis is and Why You Should Use it 5 Chapter 1: Understanding Fundamental Analysis 7 Why Bother with Fundamental Analysis? 8 Some of the real values of fundamental analysis 9 Driving home an example 10 Putting fundamental analysis to work 10 Knowing what fundamentals to look for 12 Knowing what you need 13 Knowing the Tools of the Fundamental Analysis Trade 14 Staying focused on the bottom line 14 Sizing up what a company has to its name 14 Burn baby burn: Cash burn 15 Financial ratios: Your friend in making sense of a company 15 Making Fundamental Analysis Work for You 16 Using fundamentals as signals to buy or sell 16 The perils of ignoring the fundamentals 16 Using fundamental analysis as your guide 17 Chapter 2: Getting Up to Speed with Fundamental Analysis 19 What is Fundamental Analysis? 20 Going beyond betting 20 Understanding how fundamental analysis works 22 Who can perform fundamental analysis? 23 Following the money using fundamentals 25 Comparing Fundamental Analysis with Other Ways of Picking Investments 26 How fundamental analysis stacks up against index investing 26 Comparing fundamental analysis with technical analysis 27 Putting Fundamental Analysis to Work for You 28 How difficult is fundamental analysis? Do I need to be math wizard? 29 Is fundamental analysis for you? 29 The risks of fundamental analysis 30 Making Money with Fundamental Analysis 31 Putting a price tag on a stock or bond 31 Being profitable by being a “contrarian” 32 The Fundamental Analysis Toolbox 33 Introducing the income statement 33 Balance-sheet basics 33 Getting the mojo of cash flows 34 Familiarizing yourself with financial ratios (including the P-E) 35 Chapter 3: Gaining an Upper Hand on Wall Street: Why Fundamental Analysis Gives Investors an Edge 37 Better Investing with Fundamentals 38 Picking stocks for fundamental reasons 39 Dooming your portfolio by paying too much 43 Sitting through short-term volatility 44 Relying on the Basic Info the Pros Use 45 What is “the Warren Buffett Way”? 45 Checking in on Graham and Dodd 47 Figuring Out When to Buy or Sell a Stock 48 Looking beyond the per-share price 49 Seeing how a company’s fundamentals and its price may get out of alignment 50 Avoiding overhyped “story stocks” 51 Pairing buy-and-hold strategies with fundamental analysis 52 Looking to the long term 53 Patience isn’t always a virtue 54 Chapter 4: Getting Your Hands on Fundamental Data 55 Getting in Sync with the Fundamental Calendar 56 Which companies must report their financials to the public? 56 Kicking it all off: Earnings season 57 Getting the earnings press release 58 Bracing for the 10-Q 59 Running through the 10-K 61 Flipping through the annual report 62 There’s no proxy like the proxy statement 63 Getting up to Speed with the Basic Accounting and Math 64 Operating activities: Finding smooth operators 65 Investing activities: You have to spend money to make money 65 Financing activities: Getting in tune with high finance 66 Learning a key fundamental math skill: Percentage changes 67 How to Get the Fundamental Data You Need 68 Getting acquainted with the SEC’s database 68 Step-by-step directions on accessing company fundamentals using EDGAR 69 Pulling fundamental data from websites into spreadsheets 70 Finding stocks’ dividend histories 71 Getting stock-split information 72 Part 2: How to Perform Fundamental Analysis 75 Chapter 5: Analyzing a Company’s Profitability Using the Income Statement 77 Digging Deep into the Income Statement 78 Cutting through to the key parts 78 Taking in the Top Line: Revenue 80 Breaking down a company’s revenue 81 Keeping tabs on a company’s growth 82 What are the company’s costs? 85 Calculating Profit Margins and Finding Out What They Mean 89 Differences between the types of profit margins 89 Finding out about earnings per share 92 Comparing a Company’s Profit to Expectations 93 The importance of investors’ expectations 94 Comparing actual financial results with expectations 94 Chapter 6: Measuring a Company’s Staying Power with the Balance Sheet 97 Familiarizing Yourself with the Balance Sheet 98 Separating your assets from your liabilities 98 The most basic equation of business 99 Understanding the Parts of the Balance Sheet 100 Covering your bases with assets 100 Getting in touch with a company’s liabilities 102 Taking stock in a company’s equity 104 Analyzing the Balance Sheet 106 Sizing up the balance sheet with common-sizing 106 Looking for trends using index-number analysis 108 Appreciating working capital 110 Analyzing here and now: The current ratio 111 The Danger of Dilution 111 How stock can be watered down 112 Knowing how stock options can contribute to dilution 113 Soaking up extra shares with buybacks 113 Chapter 7: Tracking Cash with the Statement of Cash Flow 115 Looking at the Cash-Flow Statement as a Fundamental Analyst 116 Getting into the flow with cash flow 117 Breaking the cash-flow statement into its key parts 118 Examining a company’s cash flow from operations 119 Considering a company’s cash from investments 123 Getting into a company’s cash from financing activities 124 How Investors May be Fooled by Earnings, But Not by Cash Flow 126 A quick-and-dirty way to monitor a company’s cash flow 127 Understanding the Fundamentals of Free Cash Flow 130 Calculating free cash flow 130 Measuring a company’s cash-burn rate 131 Chapter 8: Using Financial Ratios to Pinpoint Investments 133 Using Financial Ratios to Find Out What’s Really Going on at a Company 134 Which financial ratios you should know and how to use them 135 Using ratios to grade management 137 Checking up on a company’s efficiency 140 Evaluating companies’ financial condition 142 Getting a handle on a company’s valuation 144 Getting Familiar with the Price-to-Earnings Ratio 147 How to calculate the P-E 147 What a P-E tells you about a stock 148 Putting the P-E into Perspective 149 Taking the P-E to the next level: the PEG 149 Evaluating the P-E of the entire market 150 Chapter 9: Mining the Proxy Statement for Investment Clues 153 Getting up to Speed with What the Proxy Statement is 154 Uncovering info in the proxy statement 154 Getting your hands on the proxy 155 Expanding Fundamental Analysis Beyond the Numbers 157 Appreciating corporate governance 157 Getting to know the board 158 Stepping through the Proxy 159 Getting to know the board of directors 159 Analyzing the independence of board members 159 Delving into the board’s committees 160 Finding potential conflicts between the board and the company 161 Understanding how the board is paid 161 Auditing the auditor 162 Finding out about the other investors in a stock 163 How Much are We Paying You? Understanding Executive Compensation 164 Figuring out how much executives earn 165 Checking out the other perks executives receive 166 Where the real money comes from: Options and restricted stock 168 Checking in on your Fellow Shareholders 168 Finding out who else owns the stock 168 What’s on other investors’ minds: Shareholder proposals 169 Part 3: Making Money with Fundamental Analysis 171 Chapter 10: Looking for Fundamental Reasons to Buy or Sell 173 Looking For Buy Signals from the Fundamentals 174 Finding companies that have staying power 175 Looking for a company on the rise 179 Betting on the brains behind the operation 181 Minding the earnings yield 183 Knowing When to Bail out of a Stock 184 Breaking down some top reasons to say adios to a stock 185 Why selling stocks everyone else wants can be profitable 186 What Dividends can Tell You about Buying or Selling a Stock 187 Calculating the dividend yield 188 Knowing if you’re going to get the dividend 189 Making sure the company can afford the dividend 190 Using dividends to put a price tag on a company 191 Chapter 11: Finding a Right Price for a Stock Using Discounted Cash Flow 195 How to Stop Guessing How Much a Company is Worth 196 How minding intrinsic value can help you 197 Getting up to speed for the discounted cash flow 198 Performing a Discounted Cash Flow Analysis 201 Starting out with free cash flow 202 Getting the company’s shares outstanding 202 Estimating the company’s intermediate-term growth 203 Going way out: Forecasting long-term growth 204 Measuring the discount rate 204 Putting it all together 207 Making the Discounted Cash Flow Analysis Work for You 211 Websites to help you do a DCF without all the math 211 Knowing the limitations of the DCF analysis 212 Chapter 12: Using the Annual Report (10-K) to See What a Company is Worth 213 Familiarizing Yourself with the Annual Report 214 First, a word on the difference between the annual report and the 10-K 215 Getting your hands on the 10-K 216 Dissecting the main sections of the annual report 217 How to Tackle a Massive Annual Report 222 Starting from the bottom up: The footnotes 222 See what management has to say for itself 226 Being aware of legal skirmishes 228 Paying close attention to amended 10-Ks 228 Examining What the Auditor’s Opinion Means for Investors 229 Paying attention to tiffs between a company and its auditors 230 Understanding the importance of financial controls 230 Reading the audit opinion 230 Chapter 13: Analyzing a Company’s Public Comments and Statements 233 Using Analyst Conference Calls as a Source of Fundamental Information 234 Understanding the purpose of analyst conference calls 235 The dimming guiding light of guidance 235 Unique things to look for in analyst conference calls 236 How to access the analyst conference calls 237 Getting in Tune with Fundamental Information from the Media 239 Bolstering your fundamental analysis with media reports 240 What fundamental analysts look for in the media 241 When to be skeptical of executives’ claims in the media 241 Knowing When to Pay Attention at Shareholders’ Meetings 242 What to expect during a company’s annual meeting 243 Putting the “fun” in fundamental analysis 244 Chapter 14: Gleaning from the Fundamental Analysis Done by Others 245 Reading Analysts’ Reports for Fundamental Analysis Clues 246 Why reading analysts’ reports can be worth your time 246 Understanding the types of firms that put out stock research 247 Keying into the main types of analyst research 250 How to read between the lines of an analyst report 250 Getting your hands on analyst reports 252 Interpreting Credit-Rating Agencies’ Reports For Fundamental Analysis 253 The role of reports issued by credit-rating agencies 253 Getting your hands on the credit rating 256 Knowing when a company’s credit rating is suspect 257 Finding Fundamental Data about Companies Using Social Investing 259 The origins of social investing 259 Why it might be worth paying attention to nonprofessionals 260 How to plug into social networking 261 Following the moves of big-time investors 262 Chapter 15: Performing “Top Down” Fundamental Analysis 265 Broadening Out Fundamental Analysis to Include Monitoring the Economy 266 How the economy has an overriding effect on a company 266 Ways the economy can alter your fundamental analysis 268 How interest rates can alter what companies are worth 269 Analyzing the Key Measures of the Economy’s Health 271 Being aware of the business cycle 271 Using government statistics to track the economy’s movements 272 Getting a Jump on the Future Using Leading Economic Indicators 273 Paying attention to the Conference Board Leading Economic Index 274 Using the stock market as your economic early warning system 275 Part 4: Getting Advanced with Fundamental Analysis 277 Chapter 16: Digging into an Industry’s Fundamentals 279 Realizing How a Company’s Industry can Influence its Value 280 What’s in an industry? 281 Following the ups and downs of industries 283 How to Track How Sectors are Doing 284 Keeping tabs on a sectors’ fundamentals 285 Tracking the stock performances of sectors 286 Using exchange-traded funds to monitor sectors and industries 287 Adding Industry Analysis to your Fundamental Approach 288 Sizing up a company’s financials relative to its industry’s 288 Find out who a company’s competitors are 290 Considering industry-specific data 290 Taking stock of raw material costs 291 It’s mine! Paying attention to market share 292 Chapter 17: Pinpointing Trends using Fundamental Analysis 295 Understanding why to Consider Trends 296 When trends can be very telling about a company’s future 296 Attempting to forecast the future using trends 298 Attempting to forecast the future using index-number analysis 300 Applying moving averages to fundamental analysis 301 Finding Trends in Insider Trading Information 303 When a CEO is bullish, should you be, too? 303 Paying attention to when a company buys its own stock 304 Watching when the insiders are selling 305 How to track insider selling 306 Designing Screens to Pinpoint Companies 307 Examples of what screening can tell you 307 Step-by-step instructions on building a sample screen 308 Chapter 18: Avoiding Investment Blow-Ups with Fundamental Analysis 311 Uncovering the Dangers of Not Using Fundamental Analysis 312 Why investing in individual companies is risky business 312 Ignore the fundamentals at your own risk 314 Why digging out of a hole is so difficult 314 Avoiding bubbles and manias 316 Finding and Avoiding Financial Red Flags 320 A real-life pattern for suit-worthy shenanigans 320 The rationale behind shenanigans 321 Red flags that signal shenanigans 322 Chapter 19: Marrying Fundamental Analysis with Technical Analysis 325 Understanding Technical Analysis 326 Reading the stock price charts 327 What technical analysts are looking for in the charts 328 How technical analysis differs from fundamental analysis 329 Blending Fundamental and Technical Analysis 330 Using stock prices as your early-warning system 331 Looking up historical prices 331 The Primary Tools used by Technical Analysts 332 Getting into the groove with moving averages 332 Keeping an eye on trading volume 333 The ABC’s of Beta 334 The long and short of short interest 335 Keeping a Close Eye on Options 336 Understanding the types of options 336 Paying attention to put and call price levels 337 Watching the put-to-call ratio 338 Using the market’s fear gauge: The Vix 338 Applying Technical Analysis Techniques to Fundamental Analysis 339 Giving fundamental data the technical analysis treatment 340 Following the momentum of fundamentals 341 Part 5: The Part of Tens 345 Chapter 20: Ten Things to Look at When Analyzing a Company 347 Measuring How Much of a Company’s Earnings Are “Real” 348 Considering How much Cash the Company Has 348 Making Sure You Don’t Overpay 349 Evaluating the Management Team and Board Members 349 Examining the Company’s Track Record of Paying Dividends 350 Comparing the Company’s Promises with What it Delivers 351 Keeping a Close Eye on Industry Changes 351 Understanding Saturation: Knowing When a Company Gets Too Big 352 Avoiding Blinders: Watching the Competition 352 Watching Out When a Company Gets Overly Confident 353 Chapter 21: Ten Things Fundamental Analysis Cannot Do 355 Ensure you Buy Stocks at the Right Time 356 Guarantee You’ll Make Money 356 Save you Time When Picking Stocks 357 Reduce Your Investing Costs 357 Protect You from Every Fraud 359 Easily Diversify Your Risk Over Many Investments 360 Predict the Future 360 Make You the Next Warren Buffett 361 Protect You from Your Own Biases 361 Overcome the Danger of Thinking You’re Always Right 362 How to measure your portfolio’s return 362 How to measure your portfolio’s risk 363 Sizing up your portfolio’s risk and return 364 Index 365