Chapter 11

Using Basic Accounting to Choose Winning Stocks

In This Chapter

arrow Determining a company’s value

arrow Using accounting principles to understand a company’s financial condition

Too often, the only number investors look at when they look at a stock is the stock’s price. Yet what determines the stock price is the company behind that single number. To make a truly good choice in the world of stocks, you have to consider the company’s financial information. What does it take to see these important numbers?

This book in your hands and a little work on your part are all you need to succeed. This chapter takes the mystery out of the numbers behind the stock. The most tried-and-true method for picking a good stock starts with picking a good company. Picking a company means looking at its products, services, industry, and financial strength. Considering the problems that the market has witnessed in recent years — such as subprime debt problems and derivative meltdowns wreaking havoc on public companies and financial firms — this chapter is more important than ever. Understanding the basics behind the numbers can save your portfolio.

Recognizing Value When You See It

If you pick a stock based on the value of the underlying company that issues it, you’re a value investor — an investor ...

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