Part 1: How to Read Financial Statements

Chapter 1.
How to Read an Income Statement - Check Your Company's Fundamentals
01.
These people need financial statement analysis.
02.
There are some things to keep in mind when looking at financial statements.
03.
The income statement is structured like this:
04 Information you can find from the income statement
05.
Differences between operating and non-operating income
06.
Difference between operating and non-operating expenses
07.
Key Checkpoints for the Income Statement

Chapter 2.
How to read a financial statement
- Check the company's size and body composition (muscle and fat mass)
08.
The financial statements are structured as follows:

09.
Information that can be found by looking at the financial statements
10.
Total capital is the sum of debt and equity.
11.
Net worth (muscle mass) is more important than total assets (physique)
12.
Capital is contained within capital
13.
The difference between capital surplus and retained earnings
14.
Capital erosion is the ultimate cause of corporate insolvency.
15.
Why a free capital increase is good news, but a paid capital increase and a free capital reduction are bad news.
16.
Key Checkpoints for the Financial Statement

Chapter 3.
How to Read the Statement of Cash Flows and Statement of Changes in Equity
- Check whether blood circulation is smooth and why net assets have changed.
17.
Key Checkpoints of the Cash Flow Statement
18.
Key Checkpoints for the Statement of Changes in Equity

Part 2: Corporate Diagnosis Using Financial Ratios

Chapter 4.
Financial Stability Diagnosis - Is the Company Safe and Able to Repay Debt?
19.
Check for numerical imbalances through financial ratio analysis.
20.
Rather than the standard ratio, you should compare it with the industry average ratio or look at the trend.
21.
Three major indicators showing the ability to repay short-term debt
22.
Why is debt dependence more important than the debt ratio?
23.
Four key variables that determine the interest coverage ratio should be noted.
24.
A capital adequacy ratio that is too high is a problem, and one that is too low is also a problem.
25.
If you flip the current ratio, you get the non-current long-term ratio.

Chapter 5.
Activity diagnostic method
- Are you utilizing your business capital (assets) properly and not letting it go to waste?
26.
High capital efficiency ensures capital return.
27.
What is the appropriate proportion of accounts receivable and inventory assets among total assets?
28.
Why Inventory Sales Shouldn't Slow Down
29.
If the collection speed of accounts receivable slows down, funds will be depleted.

Chapter 6.
Profitability Diagnosis Method
- Are you generating sufficient profit compared to your sales and invested capital?
30.
Profitability should be evaluated relatively.
31.
What are the criteria for judging a good company based on profitability?
32.
Return on Invested Capital (ROIC) is a modified version of Return on Assets (ROA).
33.
For shareholders, the best company is one with a high return on equity (ROE).
34. Identify the two variables that determine ROA.
35.
Knowing the determinants of return on equity (ROE) can help you identify companies to invest in.
36.
Why is return on capital low despite high sales profitability?
37.
Earnings per share (EPS) is more important than net income.

Chapter 7.
Growth and Productivity Diagnostic Method
- Is this a company that will continue to grow and generate sufficient added value?
38.
There's a reason sales must be on the rise.
39.
What happens when the sales growth rate is lower than the total capital (total assets) growth rate?
40.
The difference between high- and low-productivity companies

Part 3: Cash Flow Analysis and Corporate Valuation Methods

Chapter 8.
Cash Flow Analysis - How does a company raise money and where does it spend it?
41.
Why do net income and cash flow not match?
42.
Why profitable companies go bankrupt
43.
Generating cash flow through operating activities is the most important.
44.
Let's examine a company's profitability and stability through operating cash flow.
45.
Checkpoints for Cash Flow from Investing and Financing Activities
46.
Cash flow tells you where a company stands.
47.
Free cash flow is important to shareholders receiving dividends.

Chapter 9.
Business Valuation Methods - How Much Is a Company Worth and Is It a Good Value?
48. The lower the EV/EBITDA ratio, the more undervalued the company.
49. The lower the PER, the better the company's value.
50. Why do stock prices continue to rise even though the PER is high?
51. A low PBR clearly means it's undervalued, but there's a reason for that.
52. In what cases is PSR used?
53. There is a reason to consider PCR.
54.
The Impact of Stock Dividends and Stock Splits on Corporate Value
55.
Which is more important, asset value or income value?
56.
Financial meaning and calculation of cost of capital
57.
Assess corporate value based on projected future earnings and projected operating cash flow.
58.
Corporate value increases only when economic value added (EVA) is created.

Chapter 10.
Stock Investment and Financial Statement Analysis - Stocks are about buying a company's future.
59.
See the forest for the trees, but the ecosystem is more important.
60.
You should buy the future, not the companies you see now.
61.
You must be able to foresee the three major variables that determine corporate value (stock price).
62.
There's a reason to ignore Korean stocks and invest in US stocks.
63.
Let's keep in mind the lessons you should never forget when investing in stocks.

Part 4 Corporate Risk Assessment Method

Chapter 11.
P&L Analysis: Understanding your P&L structure can help you predict future operating profits.
64.
Fixed costs are more risky than variable costs.
65.
The meaning and calculation of the break-even point
66.
A high break-even point is risky.
67.
Future profits vary depending on the company's profit and loss structure.
68.
Why Cost Reduction is Important

Chapter 12.
Business Risk and Financial Risk Analysis Method
- When sales decline, the risk becomes real.
69.
Two fixed costs create operating and financial risks.
70.
How to Assess Operating and Financial Risk
71.
Leverage is a double-edged sword

Chapter 13.
Predicting Corporate Insolvency - Is Your Company Failing?
72.
The reasons why companies go bankrupt are already established.
73.
Financial statements of insolvent companies share common characteristics.
74.
Pay attention to leading indicators of corporate insolvency!
75.
How to Spot Financial Statement Fraud: A Method of Hiding Corporate Insolvency

A Master Guide to Corporate Analysis for Successful Investment and Improved Business Performance

Warren Buffett, a stock investment guru, said, “Value investing is the only secret to successful stock investing. When investing, choose stocks with the mindset that you are not buying stocks, but rather buying a company that you will run yourself.”
However, there are not many people who properly evaluate and invest in a company's intrinsic value, including its asset value and earnings value, or its financial status and management performance.
If you can at least distinguish between companies you should buy and those you absolutely should not, you won't fail in investing. Even if you don't have in-depth analysis, you should at least be able to read and understand corporate analysis materials provided by securities firms or the internet.
No matter how many important financial indicators a company provides, such as PER, PBR, PCR, ROE, ROA, EBITDA, and NOPLAT, they are all useless if you don't know what they mean or how to utilize them.
If you read this book, you will surely develop the ability to distinguish between good, strange, and bad companies.


Chapter 1.
How to read an income statement
Before analyzing financial statements, we will explain how to read them.
First, we will explain the components of the income statement, the meaning of gross profit, operating profit, etc., and tell you the points to focus on when checking the income statement.
It also explains what to be careful of when looking at financial statements.


Chapter 2.
How to read a financial statement
Learn about the concepts and financial meaning of assets, liabilities, and capital that make up the balance sheet.
Check out the little things you might have overlooked, such as the differences between total assets and net assets, capital stock, capital surplus and retained earnings.
It also explains the process of capital erosion, a hallmark of insolvent companies, and key checkpoints for financial statements.


Chapter 3.
How to Read the Statement of Cash Flows and Statement of Changes in Equity
Explains why profit and cash flow on the income statement are inconsistent and why cash flow is important in corporate management.
We will also look at key checkpoints for the cash flow statement and statement of changes in equity.

Chapter 4.
Financial Stability Diagnosis Method
Learn about stability indicators that check a company's ability to repay its debt.
We will learn about the calculation methods and meanings of stability indicators such as the current ratio, quick ratio, cash ratio, debt ratio, equity ratio, and debt dependence.
In particular, the interest coverage ratio is a powerful leading indicator of corporate insolvency, so we also learn how to predict future repayment capacity through its determinants.

Chapter 5.
Activity diagnostic method
By checking the turnover rate of various assets, we can determine how well the capital invested in the business is being used for business activities.
In particular, explain why the turnover of accounts receivable and inventory assets is important, and understand the calculation method of the turnover period and its financial implications.
Along with this, we learn that turnover is directly related to operating cash flow and return on equity.


Chapter 6.
Profitability Diagnosis Method
Explain the two criteria for evaluating profitability: sales profitability and return on equity, and understand why return on equity, such as ROA, ROE, and ROIC, is more important than sales profitability.
You will also learn the variables that determine ROA and ROE and how to increase corporate value through them.


Chapter 7.
Growth and Productivity Diagnostic Method
Sales should grow every year, but I understand why the sales growth rate should be higher than the total capital growth rate.
We will also learn about added value, a productivity indicator, and what needs to be done to increase productivity.

Chapter 8.
Cash flow analysis method
Through examples of profitable companies going bankrupt and failing, we are reminded of the importance of generating cash flow through operating activities.
Additionally, we will learn indicators that assess a company's profitability and stability based on operating cash flow, and checkpoints for cash flow from investing and financing activities.

We also learn about the meaning of free cash flow, which is especially important to shareholders receiving dividends.


Chapter 9.
Corporate valuation method
Learn about relative corporate value evaluation indicators such as EV/EBITDA ratio, PER, PBR, PSR, and PCR.
You will also learn how to calculate the cost of capital and evaluate corporate value using projected future earnings and projected operating cash flows.
In particular, we will learn about the calculation method of economic value added (EVA), a performance indicator, its financial meaning, and what is needed to create EVA.

Chapter 10.
Stock Investment and Financial Statement Analysis
Understand the significance of financial statement analysis in stock investment and explain the three major variables that determine corporate value (stock price) for successful investment.
Furthermore, we will look back at the stock market maxims that you must remember and keep in mind when investing in stocks.


Chapter 11.
Profit and loss structure analysis method
Learn how to divide costs into variable and fixed costs to estimate future profits and how to calculate the break-even point using this.
Explains how to assess corporate risk at the break-even point level and how fixed costs become a very significant risk factor when sales decline.
Also, understand why cost reduction is necessary and important.

Chapter 12.
Business Risk and Financial Risk Analysis Method
Explains the financial significance of operating leverage and financial leverage, two indicators used to assess fixed cost risk.
Understand the principle that leverage based on fixed costs can act as a double-edged sword depending on the economic situation, and learn about fixed cost management methods to prepare for this.


Chapter 13.
Corporate Insolvency Prediction Method
Explains why companies go bankrupt and commonalities found in the financial statements of failing companies.
In particular, we will focus on leading indicators of corporate insolvency to develop the ability to detect insolvency in advance.
It also provides methods for detecting financial statement manipulation that is used to conceal corporate insolvency.