Which Numbers Are Important?
For the long-term investor, picking stocks is about understanding the important numbers. Long-term investors are not concerned with daily price fluctuations in a stock, because they are buying a company and it is the company’s fundamental financial health that is important.
The value of a stock is directly related to the value of the business and is primarily concerned with earnings. The purpose of a business is to make money for its owners, and the more profitable a company is the more valuable it is to its owners and others who wish to own shares. It is easy to find historical information about a company’s profits, but that is only part of the picture.
Stockholders are most interested in future profits, and historical ...