Taking a Qualitative Look at a Prospective Stock’s Figures
by Joe Lan, CFA
One of the first steps taken by investors when researching stocks is to spend time looking at a firm’s financial statements—specifically, the income statement, balance sheet and cash flow statement.
These financial statements provide investors with figures for revenues and earnings; a summary of assets, liabilities and shareholder’s equity; and the uses of cash. Quantitative analyses of these figures are a good starting point, but when it comes to investing, it is important to remember that financial statements and ratios do not always tell the full story.
While most investors take the time to understand the quantitative element of investment research, a qualitative assessment of the figures enables investors to better judge the company as a whole. It provides an understanding of the driving factors behind the numbers and allows for a clearer judgment on a firm’s prospects going forward.
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