Finding a new object for investment in the stock market is always difficult- and time-consuming process. Although there are not so many stocks on the Russian market, but lately there have been a large number of financial blogs, filled with reviews of Russian companies and analysis of financial statements. If someone writes about foreign stocks, then in most cases we are talking about dividend aristocrats or stocks from the fashion sectors: biotech, technology and semiconductors. In a word, in the domestic community, analytical support for American securities is not sufficiently developed.
But what to do, if you do not want to limit your investment choice to those stocks, who are heard? Obviously, that you have to follow the advice of Warren Buffett and study annual reports, starting with the letter "A". However, this will take a lot of time., especially, if you need to study at once a "pack" of companies (for example, from one sector) and analyze the annual report for each in detail… Certainly, reading such documents can be very educational, in some cases, you can even completely reconsider your attitude to certain processes, happening in the global economy. And if, as a result of studying the annual report, you come to the conclusion, that the company is not worth your investment? Lost time can't be returned!
I will tell you, how I save time when studying American issuers and immediately discard unsuitable options.
We study the financial performance of the company
At the first stage of getting to know the company, I collect a summary of financial indicators for the last five years. To do this, I go to the sec.gov site - the Company Filings section - and go to the corporate information disclosure page of the company I am interested in.
Rice. 1. Home sec.gov Rice. 1. Sec.gov home page
On the issuer's page, I filter on 10-k annual reports, and for the last five I open in a new browser tab Interactive Data.
Rice. 2. Opening annual reports on sec.gov Rice. 2. We open annual reports on sec.gov
If you click on the Document button, then a text version of the report will open, but she is not needed yet. By clicking on the Interactive Data button, the balance sheet will open, report about incomes and material losses, Cash Flow Statement and Others. All these forms can be found in the Financial Statements section.
Rice. 3. Access to financial reporting forms Fig. 3. Access to financial reporting forms
Now, when all financial reports for recent years are at hand, Filling out a simple spreadsheet in Excel.
Rice. 4. An example of a summary of the issuer's financial indicators for the last five years Fig.. 4. An example of a summary of the issuer's financial indicators for the last five years
I fill in the debt indicators for the last reporting year. "ROE" parameters, "Capitalization", "Earnings per share", "Net debt", "Debt / Profit" (this ratio is calculated based on the data of the last reporting year) are calculated automatically. The share price on the plate is indicated at the end of the corresponding fiscal year. The number of shares can be found in the Cover section.
Rice. 5. We look at the number of shares in circulation Fig.. 5. We look at the number of shares in circulation
Dividends per share are rarely reported in financial statements., so you have to look for this information on third-party resources. For this purpose, I usually study the issuer's website or the company's card on the investing.com portal.. At the same time, the dividend yield of the stock is immediately indicated on investing.com.
To understand the price dynamics of shares, we are not limited to prices at the end of the fiscal year, see also schedule shares over the past few years. This is where investing.com comes to the rescue again., on the timeframe of one month, the dynamics for the last five years is just displayed.
Rice. 6. Stock chart on investing.com Rice. 6. Share chart on investing.com
At this stage, the collection of data on the financial condition of the company can be considered completed..
Interpretation of the results obtained
Looking at the stock chart for the last five years, you may already be unwilling to disassemble the company in detail. If you did not see anything suspicious on the chart, then you can analyze the numbers in the generated table. For greater clarity of the result, based on the collected data, I build the appropriate diagrams.. I also insert a stock chart on the chart sheet., copied from investing.com, - for completeness.
Rice. 7. An example of constructed diagrams Fig.. 7. An example of plotted diagrams
The obtained graphs clearly show, how the financial performance of the company in question has changed: how big is the margin of operating and net profit, return on equity, equity is accumulated or wasted, how expensive is the company, it develops or stagnates / degrades. Also displayed, how the company manages its equity: whether it conducts buybacks or additional issues. With sufficient experience in analyzing such diagrams, you will immediately see, whether there is abuse of buybacks. One of these signs is that retained earnings significantly exceed equity..
The combination of earnings per share and the amount of dividend paid on one diagram clearly shows, how much of the profit goes to dividends - payments do not burden the company or it is struggling to preserve its dividend history.
If, after studying the constructed charts, you still have a desire to study the issuer in more detail, then you can already start reading the 10-k form for the last reporting year.
My experience shows, that it takes about ten minutes to fill out a financial data sheet, of which two or three are spent on searching for dividend history and copying the stock chart in Excel.
In this article, we looked at the example of Exxon Mobil (XOM). After studying the constructed diagrams, I would come to the conclusion, that the company is "somehow not very", and start studying another. I will give reasons against buying HOM shares.
- Operating margin is too low (less 10%), net profit margin is also quite small.
- Return on equity consistently lower 15%, while the company is valued at about one and a half capital.
- A significant part of net profit is directed to dividends.
- Equity is significantly less than retained earnings. Maybe, have been abused by buybacks in the past.
- Revenue in recent years has been approximately at the same level - the company is clearly stagnating. The exchange rate dynamics of stocks reflects this process..
As you can see, spending just ten minutes, you can draw quite a few conclusions about the current state of affairs of the issuer.
