In the January issue of SmallCap Informer, the editors looked at a few core principles of financial statement analysis that go into valuing a stock. Lawrence A. Cunningham, whose 2001 book “How to Think Like Benjamin Graham and Invest Like Warren Buffett,” offers an excellent approach to what goes into valuing a stock. From Cunningham’s book, SmallCap Informer’s editors offer this insight:
Obtaining the necessary degree of confidence in valuation entails just a few quantitative inquiries.… Financial statements must enable you to answer three questions about a business:
— How likely is it the business will be able to pay its debts as they come due?
— How well is management running the business?
— What is it worth?
These principles may seem basic, but keeping a focus on these questions when evaluating a stock can go a long way toward getting a grounded sense of a stock’s real value. It requires steady discipline to keep perspective on such fundamentals, while looking at other, more complex measures and analyzing prospective stocks. This is part of the philosophy subscribers will find in each issue of SmallCap Informer, along with recommendations of specific stocks to consider for investment.
Each issue of SmallCap Informer is packed with information to help subscribers make smart investing decisions about small-cap stocks in your portfolio. We provide regular updates on our analysts’ expectations for the stocks we cover and recommend stocks to sell, when warranted. In each issue, we recommend two stocks for investors to consider, which are selected and analyzed using the Stock Study form in the Toolkit 6 software program available from ICLUBcentral. Subscribers may also look forward to e-mail alerts, when warranted, about breaking news on one of the companies we follow. Click here to subscribe.