Monday, 30 November 2009

Doing Your Homework: Trend Analysis

The information in the financial statements (BS, IS or RE statement), the basic (per-share) financial metrics and the various ratios are snapshots of the company's financial condition at a point in time, but there are trends in motion that need to be identified so you can understand if the company's position is improving or deteriorating.

For example:
  • Company ABC's year-over-year trend analysis indicates a generally positive trend with an increasing growth in sales, earnings, cash flow, and dividends per share. 
  • The leverage, value, and dividend ratios are all positive or well within acceptable ranges, with the exception of the quick ratio. 
  • Based on analysis, the dividend looks to be secure and Company ABC would be a good buy.

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