Tutorial: read a company page in five minutes
Four questions, in order: what does it do, does it make money, will it survive, is it cheap.
Form a first opinion on any company without needing anyone else's.
How read a company page in five minutes works, in one picture
The same argument as the text, as a chain. Each step is what makes the next one possible.
The order matters more than the maths
Cheapness is the last question. Ask it first and you produce a list of companies the market has given up on, and it is usually right.
- 1
Start with the business, not the price
OverviewThe price tells you what other people think. It tells you nothing about the company. Read the description and the sector first, and say out loud, in one sentence, how this business makes money. If you cannot, stop. You are not ready to have an opinion on it, and no ratio is going to rescue you.
A price chart is the most seductive thing on the page and the least informative. Scroll past it.
- 2
Check that it actually makes money
FinancialsLook at revenue and net income across the last eight periods. You want two things: a line that generally goes up, and a gap between the two lines that is not shrinking. Revenue growing while profit flattens means costs are winning.
Then look at free cash flow. Profit is an opinion; cash is a fact. If profit has been rising for three years and cash has not followed it, something is being counted that has not yet been collected.
- 3
Check that it will survive
StatisticsDebt to equity, and interest coverage. Coverage below about 2 means one bad year hands the company to its lenders. High debt is not automatically bad, but it removes the company's right to be wrong, and businesses are wrong quite often.
A wonderful return on equity produced entirely by borrowing is not quality. It is leverage wearing quality's coat.
- 4
Only now, ask if it is cheap
Valuation LabCheapness is the last question, not the first, because a bad business at a low price is still a bad business. Compare the P/E against the sector average shown on the page, and open the DCF to see what growth today's price already assumes.
The useful question is never 'is this cheap'. It is 'what would have to be true for this price to make sense, and do I believe it'.
- 5
Write down why, before you buy
WatchlistOne sentence. Why you own it, and what would make you sell. If you cannot write it, you do not have a thesis, you have a feeling. Feelings are the thing that sells at the bottom.
Ordinary. The market expects steady, unremarkable growth.
You can state, in four sentences, what the company does, whether it makes money, whether it can survive a bad year, and what the current price assumes.
Read next
Four questions, in order: what does it do, does it make money, will it survive, is it cheap.
1,100+ companies across 17 exchanges, filtered on any combination of moat, valuation, growth and debt.