When evaluating high-quality stocks, what are the four key points to focus on in earnings reports?

As the saying goes, buying stocks is buying the company.

When the company develops well, shareholders can share the company's achievements.

If the company's development is not good, the value of the stocks held by shareholders will also decrease.

How do we know whether the company is developing well or not?

The answer is earnings reports.

Earnings reports are the main method for public companies to disclose their performance for specific periods.

They record the company's financial indicators and can well reflect the company's operational results.

Public companies in the US release earnings reports every quarter.

Financial reports released in the first three quarters of the fiscal year are called quarterly reports, also known as 10-Q.

The one released after the fourth quarter is called an annual report, known as 10-K.

The annual report reflects the company's operating conditions over the past year, with more detailed information disclosed.

For investors, it is important to understand financial reports.

On one hand, financial reports are like a company's report card.

By understanding how to interpret this report card, investors can become more familiar with the company's health and make more rational investment decisions as a result.

On the other hand, financial reports have a significant impact on a company's stock price.

For example, if a company's financial data exceeds market expectations, it may drive the stock price up.

If the financial indicators data are worse than market expectations, the stock price is likely to fall accordingly.

However, there is a lot of content in the annual report, including company operations, risk factors, financial statements, and so on. How should one go about reading it?

We have summarized four steps to help everyone learn how to read earnings reports.

Step one, understand the business model, clarify the company's main products and services, which subsidiaries it owns, and in which markets it operates its business.

Step two, analyze the profitability.

By analyzing the income statement, see if the company is profitable and assess its profitability.

Step three, delve into the company's solvency.

By analyzing the balance sheet, check if the company is at risk of bankruptcy.

Step four, analyze the company's cash flow to see if the company has enough cash for future development or to distribute to shareholders.

Through the above four steps, I believe everyone has also learned to read earnings reports, before making investment decisions, they can have a deeper understanding of whether the company is operating well.

So how should the "Four Steps Method" be specifically implemented?

In the upcoming video, we will have a more detailed explanation.