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Reading a company instead of a chart
Fundamental analysis asks a different question than technical analysis: not “what has the price done,” but “what does this business actually look like.” Three statements carry almost all of it — the income statement, the balance sheet, and the cash flow statement.
1. The income statement: did the business make money
Revenue minus costs equals profit, at several layers: gross profit (revenue minus cost of goods), operating income (minus operating expenses), and net income (after interest, taxes, everything). Revenue growth describes demand; margin trends describe whether that growth is getting cheaper or more expensive to produce.
2. The balance sheet: what it owns and owes
Assets (what the company has), liabilities (what it owes), and equity (the difference) at a single point in time. Two numbers worth a close look: cash + short-term investments (the actual runway), and total debt relative to equity (how leveraged the business is). A company can be profitable and still run out of cash — the balance sheet is where that risk shows up first.
3. The cash flow statement: profit isn’t cash
Net income includes non-cash items (depreciation, stock compensation, accruals). Operating cash flow strips those out and describes the actual cash the business generated. A company reporting profit on the income statement while burning cash on the cash flow statement is a pattern worth noticing — descriptively, not as an automatic red flag.
4. Valuation ratios: price relative to something
- P/E (price / earnings): describes how many years of current earnings the market price represents. Useful only compared to the company’s own history or close peers — a “high” P/E in isolation describes nothing.
- P/B (price / book value): describes price relative to net assets. More relevant for asset-heavy businesses (banks, real estate) than for asset-light ones (software).
- Debt/Equity: describes leverage — how much of the balance sheet is financed by borrowing versus owners’ capital.
5. Reading an SEC filing without drowning in it
A 10-K’s most information-dense sections, in practical order: the Risk Factors (what management itself flags as a threat), the MD&A (management’s own narrative of the numbers), and the financial statements’ footnotes (where accounting choices and one-time items get disclosed). SEC EDGAR (sec.gov/edgar) publishes every filing free, directly from the source — no paywall, no summary layer between you and the primary document.
6. Dilution: a structural risk, not a technical one
A company can issue new shares (a secondary offering) to raise cash — this increases share count and usually pressures price, independent of anything the chart shows. Checking for recent shelf registrations or secondary offerings in SEC filings is a fundamental-analysis step that often explains a price move technical analysis alone can’t.
Next
Continue to Trading Methodology to see how selection criteria and risk framing combine both of these lenses, or revisit Technical Analysis Fundamentals.