Learn (Economics) · Course

Reading Financial Statements: Fundamental Investing by the Numbers

From finding disclosures to the balance sheet, income statement, cash flow statement, and warning signs. Build the basics of fundamental investing: judging value from a company's numbers.

37 lessons in total37 published0 read

Start with Lesson 1

Part 1 · Lessons 1–5 (5 lessons)

Getting to know DART

Learn what DART is and which reports are posted when, and find and open the report you want on your own.

Part 1 · Lesson 1 · 14 min

Financial statements are a company's health checkup

Summarizes the balance sheet, income statement, cash flow statement, statement of changes in equity, and notes on a single page.

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Part 1 · Lesson 2 · 13 min

DART is the official bulletin board for companies

The Financial Supervisory Service's electronic disclosure system, where the official documents listed companies must file by law are gathered.

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Part 1 · Lesson 3 · 13 min

How to find a company on DART and open its report

Follow step by step how to search by company name, filter by period and report type, and navigate the table of contents.

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Part 1 · Lesson 4 · 13 min

When do annual, half-year, and quarterly reports come out?

See a one-year disclosure calendar for December fiscal-year companies as a timeline.

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Part 1 · Lesson 5 · 14 min

Annual report map: where to start?

Learn the order for skimming a thick business report in 10 minutes.

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Part 2 · Lessons 6–11 (6 lessons)

Balance sheet: a company's inventory of assets

Understand the structure assets = liabilities + equity, and judge how safe a company is.

Part 2 · Lesson 6 · 14 min

The balance sheet is a company's list of belongings

Assets = liabilities (other people's money) + equity (your own money). A snapshot as of a specific date.

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Part 2 · Lesson 7 · 14 min

Assets: cash, inventory, and the factory

Distinguish current assets that turn into cash within a year from non-current assets used for a long time.

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Part 2 · Lesson 8 · 14 min

Liabilities: debts come in different kinds

Distinguish interest-bearing borrowings from trade payables and advances received that arise in the course of business.

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Part 2 · Lesson 9 · 15 min

Equity: Shareholders' stake and capital impairment

Look at share capital, retained earnings, and capital impairment, which arises when losses pile up.

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Part 2 · Lesson 10 · 14 min

Gauging safety with debt and liquidity ratios

Calculate the debt ratio and the current ratio and see why the benchmarks differ by industry.

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Part 2 · Lesson 11 · 14 min

Consolidated and separate financial statements

See the difference between consolidated statements, which include subsidiaries, and separate statements, which look at one company alone.

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Part 3 · Lessons 12–17 (6 lessons)

Income statement: a report card for a year of business

Understand the staircase from sales down to net income, and tell core-business strength apart from one-off gains.

Part 3 · Lesson 12 · 14 min

The income statement is a report card for a year of business

See the staircase of sales → gross profit → operating profit → net income in a diagram.

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Part 3 · Lesson 13 · 14 min

Revenue and cost of sales

Read the tug-of-war between raw material prices and selling prices through the gross margin.

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Part 3 · Lesson 14 · 14 min

Operating profit: the core business's true ability

Look at core-business profit left after subtracting selling and administrative expenses, and at the operating margin.

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Part 3 · Lesson 15 · 15 min

Why net income differs from operating profit

Separate interest expense, FX gains and losses, and one-off gains and losses.

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Part 3 · Lesson 16 · 14 min

EPS and P/E: What one share earns

Calculate EPS = net income ÷ number of shares and P/E = share price ÷ EPS yourself.

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Part 3 · Lesson 17 · 14 min

Reading quarterly results: year-over-year and seasonality

Learn how to read QoQ and YoY and preliminary earnings disclosures.

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Part 4 · Lessons 18–22 (5 lessons)

Cash flow statement: the money that actually hit the bank account

Understand that profit and cash can differ, and check a company's strength through its cash flows.

Part 4 · Lesson 18 · 14 min

The cash flow statement is the real bank record

See the difference between book profit and the cash that actually came in and went out.

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Part 4 · Lesson 19 · 14 min

Reading operating, investing, and financing activities in three columns

Infer the company type from the +/− combination of the three columns.

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Part 4 · Lesson 20 · 14 min

Free cash flow (FCF): the money that's really left over

FCF = operating cash flow − capital expenditure. The source of dividends and debt repayment.

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Part 4 · Lesson 21 · 14 min

Why do profitable companies fail? Bankruptcy despite profits

When receivables and inventory pile up, cash can dry up even when the company makes a profit.

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Part 4 · Lesson 22 · 14 min

Checking earnings quality

Build the habit of looking at operating profit and operating cash flow together over three or more years.

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Part 5 · Lessons 23–27 (5 lessons)

Comparing companies with financial ratios

Compare companies with key ratios, and build the habit of looking at trends within the same industry across several years.

Part 5 · Lesson 23 · 14 min

ROE: how much does it earn with shareholders' money?

Break ROE down into profit margin × turnover × leverage.

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Part 5 · Lesson 24 · 14 min

PBR and BPS: share price relative to assets

Look at BPS, PBR, and what a PBR below 1x means.

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Part 5 · Lesson 25 · 15 min

Dividend metrics: payout ratio and dividend yield

Learn the payout ratio and dividend yield, and how to read dividend decision disclosures.

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Part 5 · Lesson 26 · 14 min

Compare within the same industry

See why normal ranges differ by industry and how to compare against the industry average.

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Part 5 · Lesson 27 · 14 min

Look at 3–5 year trends, not a single year

Pick out consistent companies using a five-year view of sales, operating profit, and ROE.

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Part 6 · Lessons 28–33 (6 lessons)

Reading disclosures beyond the numbers

Read the business structure, risk factors, and shareholder-related disclosures that financial statement numbers alone can't show.

Part 6 · Lesson 28 · 14 min

Finding how a company makes money in the Business Overview

Look up revenue share by product, order backlog, and raw material prices.

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Part 6 · Lesson 29 · 14 min

Notes: What's behind the financial statements

Find contingent liabilities such as related party transactions, collateral and guarantees, and lawsuits.

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Part 6 · Lesson 30 · 14 min

Audit opinion: anything other than unqualified is a warning sign

Look at the unqualified, qualified, adverse, and disclaimer opinions and going-concern uncertainty wording.

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Part 6 · Lesson 31 · 15 min

Paid-in capital increases, convertible bonds (CB) and treasury stock disclosures

Calculate funding disclosures and ownership dilution.

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Part 6 · Lesson 32 · 14 min

Largest shareholder and 5% stake disclosures

Read largest-shareholder changes, large shareholding reports, and trading disclosures by officers and major shareholders.

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Part 6 · Lesson 33 · 14 min

Preliminary results and correction disclosures

See the preliminary results that come out before the business report, and the correction disclosures that keep recurring.

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Part 7 · Lessons 34–37 (4 lessons)

Putting it into practice: read and judge for yourself

Pull together what you've learned to screen out warning signs, read a real business report, and sum it up in a one-page note.

Part 7 · Lesson 34 · 15 min

10 warning-sign checklist

Check for signs to avoid, such as consecutive losses, capital impairment, and frequent CB issuance.

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Part 7 · Lesson 35 · 15 min

Practice: a sturdy company vs. a risky company

Compare Robin Bakery's and Dark Cloud Electronics' financial statements side by side.

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Part 7 · Lesson 36 · 16 min

Practice: reading a real business report together

Read the business reports of a large manufacturer and a bank in table-of-contents order.

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Part 7 · Lesson 37 · 14 min

Graduation: your own one-page company analysis note

Write a six-box note covering business, growth, profitability, stability, cash, and shareholder disclosures.

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This is educational material and not investment solicitation. There is no guarantee that past relationships will repeat in the future.