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.
A good resource for conducting qualitative analysis is the Form 10-K. This is an annual filing required from public companies by the Securities and Exchange Commission www.sec.gov/edgar/searchedgar/companysearch.html). In the database, you are able to search any company by name or ticker (Figure 1). The company page on EDGAR shows a sample of the filings with a link to download each document (Figure 2). You can also search for a specific filing on the company page.. The 10-K provides a comprehensive overview of a company, including its business, management, financial performance, legal proceedings and debt obligations. Though lengthy and detailed, the document can reveal important information for those who know where to look. Other useful resources include the company earnings reports and conference calls with analysts. A company’s annual report and investor presentations can also elicit useful, qualitative information. Annual reports and investor presentations can usually be found on company websites. You can find company 10-Ks using the EDGAR database on the SEC website (
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