Investor’s Library: Fundamental Analysis, Technical Analysis, and Income Investing (Collection)

11. Analysis Tool #8: Profitability and Growth Analysis

When a company reports quarterly results, the market focuses on earnings. All else equal, the share price moves up if the company reports better than expected earnings and down if it doesn’t.

But, earnings don’t come out of thin air. In this chapter, you’ll learn how to analyze quarterly financial statements to determine if the firm had to stretch to make its numbers and, most important, what happens next. Is the company more likely to beat or fall short of analysts’ forecasts when it reports its current quarter’s results? This chapter focuses on four factors that, taken together, will help you answer those questions:

• Sales and sales growth

• Profit margins

• Profitability ratios

• Cash ...