How To Pick And Analyze Stocks (Complete Guide)

hey everyone welcome back to the channel so in today's video i'm going to show you how i pick and analyze stocks uh this is not going to be an entertaining video i'm not going to be jumping around it's going to be really just for information so if this is something that you have some time to set aside here to learn about investing then i think it's going to really be worth your while um so i do recommend taking out a pen taking out a piece of paper writing some of these things down as we go through this talking about different strategies for investing and specifically how to actually find stocks to invest into there are thousands of companies that we could potentially invest into so how do we whittle that down to just one company or just a handful of companies that we invest into so that's what we're talking about in today's video so let's go ahead and get started with it here today um so we're going to break this down in a couple of different segments here uh and so the first part that we're talking about are some of the basic investing principles uh on on the basics of picking stocks in general if you want to do active investing um and then we're going to start actually looking at some of the more specifics talking about uh industries talking about top down bottom-up strategies um and then finally we're actually gonna do an example here i'm gonna walk you through looking at uh a financial uh statement looking at uh an annual shareholders meeting statement it's about 130 pages we'll go through that a little bit and just share some of the the things that i look for when i'm investing into a company and of course all of this you know i'm not a financial advisor i'm sure you already know that by now i'm just a guy on the internet so uh take everything with a grain of salt here um and you know okay so now that we've said all that let's get started with this video and by the way this video is brought to you by moomoo so if you want to get five free stocks uh when you're investing you can sign up for the app down below in the description it's an investing app where you can buy and sell stocks it's one of my favorites so i'll leave that link down below it's an affiliate link so uh if you use it and you sign up for moomoo i will get a small commission helps keep these videos free you know we don't have like courses or anything to sell you uh so it definitely just helps support the channel so um the first thing that we're gonna talk about here actually there's there's a few key elements uh before we get deep into picking stocks and the first thing i do when i think about investing uh is i focus on losing money okay i'm gonna say that again because it sounds weird but i really focus on losing money uh for investing and and this is because i i think a lot of people when they start like investing especially uh they they tend to have these ideas of becoming rich of getting wealthy um and making tons of money and i think this is one of the biggest problems right now is is people have these views of getting wealthy and so they're blinded by these prospects of making a lot of money in the stock market that they end up making rash decisions they make gambles instead of investments and so my goal is always to focus on losing money because if you can limit your downside and then focus on you know increasing your upside that's the most important aspect here you know if if you have an investment and you lose 90 on that investment now to get back to where you started you have to make a 1 000 return to get back from where you started after you lost 90 you have to make a thousand percent return to get back to zero okay so this is this is like a really groundbreaking like concept that you need to understand is that always focus on risk always ensure that you are investing rather than gambling or speculating um because if you're not working on limiting your downside you're you're going to get wrecked in the markets i mean it happens to so many people uh and if you want to gamble i mean really just just go to a casino um because if if you're not doing any type of risk mitigation then you know that's that's not going to work out very long term so what i'm always doing is i'm running scenarios and i'm looking at what's the worst case possible scenario for my portfolio so if i look at my basket of stocks that i might have say i have 15 stocks what's the worst case scenario with the economy uh could we enter into a recession every single possible worse case scenario i'm running all those to ensure that i'm still properly hedged we'll talk about hedging portfolios and probably a different video um because today we're really focusing on you know how to actually pick uh stocks um but another really important thing here is getting rid of emotion okay so trying to throw emotion out the door and really focus on logic when you are finding stocks to invest into um and tying that in with emotion is is going to be taking your time with investments so i typically have a role where i don't invest into a company within the first 24 hours of discovering that company so this is why like hot stock tips anybody who's telling you you know buy this stock it's going to blow up next week or something else along those lines i tend not to follow those i throw motion out the door and really just focus on logic and taking my time moving slowly and ensuring that i fully understand a company before i actually start investing into it so make sure that you do this and that every single investment that you make is going to be something that long term you feel comfortable with and you fully understand all right so the last thing that i'm going to say before we get deep into this video here is what i always do for any stock that i will find um so you know by the end of this video let's say that we have a stock that we've picked and we've decided that we wanted to invest into it i will then create a thesis against myself so this is also really important before you buy a stock it's important to create a thesis against yourself so let's say that for example you really like tesla and you think tesla is is going to the moon it's going to you know 4x or 5x in the next year if you believe that um you know you could what i would say i was doing is then going and finding all the negative things about tesla and really digging deep in that people have this this this common problem where they start to get confirmation bias they say oh i like this stock so they find all of the good news articles about that stock they find all the people who love that stock as well and they sort of gather with those people and talk with those people what you should always do is go to the opposite perspective and figure out why those other people have a different perspective than you so with tesla stock if i like tesla stock i'm gonna go and find the people who hate tesla stock and try to figure out why they hate it so just remember that as well all right so now let's talk about how to pick a stock how do we find one there are thousands of companies out there that we can potentially invest into so how do we determine if this is actually a good company to buy um and how much do we invest into it there's a lot of questions that we might have here so let's start off with uh looking at two different strategies for finding stocks and these two strategies are are very different from each other so one is called a top-down strategy and the other is a bottom-up strategy for finding companies to invest into so let's start off with the top-down strategy so the top-down strategy it's essentially going to be um this this uh like upside-down pyramid where we start off with looking at the macro uh so we start off looking at uh the the global economy we look at the world and then we slowly whittle it down to the point where we end up with one company so with the top down strategy uh what you do for this to find a stock to invest into is you start with the global economy you look at the economy where's the economy going next year what's going to be in five years 10 years is the world population growing is it declining right we start with that we analyze it we start to understand the global economy then we whittle it down to a country probably best off your country that you live in because you already have a decent understanding of what the culture is you know like a lot of other things that are important to understand um so then you focus on studying a country's economy you learn about you know the fed or the central bank in your country and then after that you continue to go from the top down and you move on to an industry so here's what i suggest doing if you're doing the top-down strategy for finding companies to invest into you really should focus on a couple of industries and become an expert on those industries so there are about 11 or 12 like primary industries uh in the world or or like sectors in the market right you know things like health care financials or tech um and so what i suggest doing is don't try to be a jack of all trades and like understand every uh like sector in the entire market because you're gonna end up being really mediocre at that so what i do personally is i pick a couple of different sectors or industries and i really learn a lot about those specific industries and i'll read books about them i'll read dozens of books and i'll get really into them and so that's the third level there we start global economy you look at the national level then you look at a like an industry so for example this could be like the energy industry i've gotten really deep into this in the past couple of months then after analyzing an industry and trying to get an understanding of where it's going right let's say the energy industry for example you analyze it you learn about everything there is to know about uh like generating electricity right and you look at fossil fuels you're looking at solar you're looking at fusion and geothermal everything you get a really solid understanding of it then from there you move into core competitors right and so you start to look at a handful of companies maybe let's say you're thinking about investing into um like the solar industry and so you pick three to five different companies that are all pretty similar maybe they're all in the solar industry you've already analyzed the energy industry so you have an understanding of that now you're analyzing the solar specific uh a segment there you're looking at three to five companies and then from there you can whittle it down to one company or two companies to invest into at the end of the day that is what i do that is how i use the top-down strategy for finding stocks um you might still have some questions there like you know how do you decide on that one final company or those two final companies out of all of those but that is how you use something like the top down strategy you start with the big picture and you move down to the small picture and you get down to the micro on a specific company all right that's one strategy the other strategy is going to be the total opposite of that it's called the bottom-up strategy and so with the bottom-up strategy you essentially start off with the company and then you analyze the industry and then you start to analyze you know the national economy and then you start to analyze the global economy so you can use the bottom-up strategy as well i've done this in the past uh the case in which this one might work is for example maybe the company that you work for you look around you say you know what i like this company i think it's a great has a great culture i think it's going places it's growing really well and if you think that's the case then using the bottom-up strategy you would then compare that company with a couple of other companies like the core competitors to that company and then from there when you analyze those you say okay well you know what it still looks like it's it's doing pretty well compared to its competitors then you take it up to the industry how's the industry doing over the next 10 years how is it done in the past what's the future of it so for example like if it's an oil company yeah the future of it might not be amazing because you know 20 years down the road uh maybe perhaps oil consumption is down or there could be some big shifts in the energy industry right so you go bottom up and eventually get up to the macro so that's one strategy as well i tend to use the top-down strategy a little bit more often just because i think it's really crucial to spend a lot of time analyzing an industry all right so now i want to share three amazing tools that you can use for finding stocks and getting very specific with it uh so the first one it's a basic stock screener it's called finviz they're not sponsoring this like i have no affiliation with them but i genuinely just use this website quite often um and so let's just go on it right here and i'll show you around a little bit so finviz essentially what this is it's a stock screener and they have so many options up here so if you click on screener what we have is all these different things for example we can sort companies by market cap or by their dividend like maybe we only want dividend stocks or maybe we want something in a specific sector like consumer cyclicals right we can decide all of those we can set those uh metrics and then we will you know see what stocks will still fit into this criteria um if we go click over on fundamental you know we have other options as well like you know pe or forward pe or price earnings growth ratio or price to sales this is also pretty important price to book right so we can start to actually really whittle it down here and find companies that we are more specifically interested in um and you know you're probably seeing a lot of ratios on here we'll talk about some of them here uh but the truth is if you want to learn about each and every one of these your best bet is going to be reading books rather than watching videos on a topic specific to understanding ratios and specific you know financial basically like measuring the health of a company uh books are going to be your best bet so another tool that i use um is a website called open insider and there's a couple of other sites similar to this as well but essentially what this does is it shows us uh what executives and the top shareholders are doing with their shares of a stock um so this is actually like i always use this before i invest into a company because i want to see where the heads are of people who are in charge of this company if everybody's selling the stock like the executives the ceo if everybody's selling the stock that's a pretty bad sign it means they probably don't believe in the company and it might be you know the titanic going down so you don't want to be in a position like that personally i wouldn't want to so like let's just look at an example here like let's say we're thinking about investing into a company like air products um and so we can see okay well we have some people selling we have some people buying these are all going to be important people open insider is only people who have to file with the sec if they own i believe over five percent uh of a publicly traded company they have to make this filing um and also if they are like an executive in the company uh or or they're on the board for example they have to make these filings with the sec which then becomes public information um so with their products you know we can see most recently somebody sold we can look up who this is right we can see uh what they're in charge of um you can see like a director sold some of these uh other people sold but some other people bought so just very interesting to see that um over the past two years who was buying and selling so i like using open insider and then the third tool that you can use is some of the features on moomoo they do have a stock screener feature available on that as well um so you know you can check that out if you want to get like really deep into it uh what i do like about the platform though is that they have a pretty good setup for actually doing like some pretty nice technical analysis uh they have some good charting features pretty similar to weibull actually i used to use weibo a lot for you know like looking at the specifics on a technical analysis basis but moomoo also works as well so those are some great tools that you can use uh for you know doing some more research about a specific stock uh now let's actually take you through an example of doing a quick and dirty analysis on a company um and so i think what we're gonna do is we're gonna look at a company called air products it's one that i am invested in um so just for full disclosure there uh it is a very large company it's like a 50 billion dollar company or something um and it's kind of a boring company but it's it's one that i understand a bit so we're gonna go through the uh the annual statement it's about 130 some pages it's gonna be a little bit long um but i'll show you the things that i really look at uh when i'm thinking about finally like investing into a company okay so in order to do a full analysis on a company we need to get the most important documents which is going to be something called uh a 10k and an 8k so a 10k is their annual uh like statement it's it's usually going to be a really long one it's the most important and then we have a thing called an 8k which is going to be a quarterly report on the financials of a company so all publicly traded companies in the united states have to release this information it's a public information um and so you should be able to access this somewhere so there's a couple places you can access it but i find that the best way to do this is by going to the investor relations page of the company that you're interested in and this is going to make sure that this information is up to date and accurate so for this example i think we're going to do air products so for example what i can do is air products investor relations is what i'm going to look for here and you can usually find investor relations page on almost every company out there so i usually just end up googling it to make sure that i get to the right spot um so let's go ahead and dig through this here so we're on the investor relations page of air products which is an industrial company they sell a lot of gases it's just one that i'm invested into it's very large it's like a 50 billion dollar company um you know i wouldn't want to talk about small companies on this channel because i don't want to influence the price of them or anything weird um so let's go ahead and see if we can find these uh reports so we can go click up on filing slash reports um and for full disclosure i already said this i think but i do own a little bit of air product stock so definitely this is not any type of like suggestion to buy the stock or anything along those lines um so we'll see all these different reports here in 8k that's going to be that quarterly report that we want to take a look at but let's go ahead and actually look at an annual report it's going to give us a bigger better picture of the company but typically though you're going to want to go for the most recent whether this is an 8k or a 10k whichever one is most recent they just reported their quarterly earnings february 4th so let's go and actually just look at their annual report though for 2021 and it is a pdf so here we are 134 pages let's go ahead and start just peeling back some layers here and see what we can find and we are going to get started with this all right so we can just see some of the basics here you know looking at their business right what do they do they'll give us a nice uh like understanding of this they're in industrial gases uh basically throughout the world america's europe middle east africa global uh i know they have a lot of operations in china as well so we will read through this look at some of their financial highlights here so we can see that they're very well diversified throughout the world this can be good and bad the good thing about this is that you know certainly means that if one country's operations have problems uh the rest of the other operations throughout the world can hopefully uh help that company like air products to kind of uh stay sustainable and and you know stay alive um the downside of this is you know trade wars wars in general other problems you know things happening with like russia and ukraine right now there can be a lot of things that could end up hurting a global company as well so there's both uh positives and negatives to something like that um so let's look at some of these like important metrics here and we'll have some more detailed ones later on throughout uh as we go through this 134 pages here but some of the basics here that that we want to definitely be aware of um is that most of these uh reports are going to be in uh like certain things so millions of dollars is what this is reported in um some financial statements it'll be different they'll be in thousands of dollars instead of millions of dollars so make sure you read this because otherwise you're going to look at these numbers here and say what the hell is going on i don't understand like did this company make ten thousand dollars this year um so no they actually made 10 billion dollars because it's 10 000 million dollars okay so that comes out to about 10.3 billion dollars uh in sales that air products had in 2021 so one of the things that we always look at here is looking for growth in things like sales i think it's pretty straightforward you want to see growth in sales typically but it's not going to be the only picture that we want that we're going to want to look at here now one thing that is really important here when analyzing financial statements and looking over an annual report is before you invest into a company i really believe you need to read every single word in these documents because sometimes there's going to be just one sentence in there that totally gives you the ick on a company essentially and i've had this happen before where i would miss one sentence in a report and i would miss that sentence and then suddenly weeks later after i had already invested into the company i came back and i realized i missed that sentence and it totally changed my perspective on the company we'll talk more about that later but you really do have to read and understand everything in these reports to ensure that it's a company that you want to invest into so we will talk actually about all these different things later on throughout this document here so we'll talk about you know income profit some of these other things uh just a terminology for you to know uh gaap stands for generally accepted accounting principles so this is going to be following along with certain protocols and things that they have to do to ensure that accounting is you know standard among uh different companies and industries so that we don't have some big like enron problem like what happened before um so let's go through here uh we can skip over some of this because uh we are going to talk about more of this later but you can look at quarter to quarter sales when you're looking at something like this the one thing i will warn you on is i tend to look at things like annual growth instead of quarterly growth because a lot of businesses are going to be sort of cyclical or seasonal um so for example a lot of businesses will have a lot more sales in quarter four like around christmas and then a lot fewer sales in like quarter one you know january february march we see that a lot especially with retail companies like macy's for example they're going to sell a lot more during the holiday season than they will during the summer so i don't always like to compare quarters to each other i like to compare years to each other although maybe you know looking at like net income margins are going to be pretty useful to do that so we will talk about all of this um later on throughout because it's going to go into more detail there but let's just look over a couple things here right so we have things like adjusted operating margin what does this mean um so what we're looking at here is uh these sales were 10.3 billion dollars uh 2020 8.8 billion dollars so it has grown over the course of a year and we can look at their operating margin which is about 22 percent um and you you know factor in a couple of other things and still they're essentially their their operating margin is 22 it's down uh from 2020 which was 24.9 so a decrease in operating margin tends to be not a very good thing we want to see those margins increasing typically unless there's some other things uh that you know we haven't accounted for um looking at things like earnings per share this is going to just take what we just saw here and just put it into a per share basis uh we'll talk more about that later as well uh some other terms here that you might want to know return on capital employed essentially how good is this company at uh making money on their investments let's say they invest into like a new project and they're pumping cash into it how good are they at returning that money and making more money from the money that the company invests um so that's an important metric as well to understand um now here's where we get into some really interesting stuff um we're gonna look at things like uh the the board members the ceo everything else uh along those lines you don't wanna skip over this but just reading through this here okay so you know they have a nice earnings per share growth this is always going to be important as well 11 compound annual growth rate that's what cagr stands for compound annual growth rate but you know if we get a little bit more specific here we can actually notice that for example um in 2021 they had an eight percent growth and in 2020 they had a two percent growth but if you go back to say like 2015 2016 2017 they had double-digit growth you know they had 18 growth in 2018 12 growth in 2017 these days they're getting two to eight percent earnings per share of growth so it looks like growth might be slowing down a little bit that's just something that you know i noticed right here right off the bat as we're going through this so you know definitely we have to figure out why is that happening there's gonna be a lot of questions that come up as you analyze a stock um and so you know like going through this i'm going to be writing down these questions why is their earnings per share not growing as fast as what it was a few years ago is that an industry-wide problem are they losing a moat are they potentially are there other competitors driving up prices we need to get to the bottom of that and figure out why they're earning special growth it's still growing which is good but it's not growing as fast as what it once was so let's figure out why that happened and i'm going to be writing down all these questions as you go through write down all these questions i would say probably i'll spend you know 20 to 30 hours reading through these statements until i get to the bottom of every question that i might have you really have to be meticulous with this um so you know they're going to just talk about a bunch of things obviously you want to read this if you are considering investing into a company um looking at some of their big projects right four and a half billion dollar clean energy complex in louisiana uh 12 billion dollar project in i believe this is saudi arabia and then you know canada so they are definitely worldwide there um now let's look at board of directors don't skip over this part many people skip over this okay you have to like semi stalk some of these uh people okay that that sounded bad don't don't actually stalk them but what i mean is that you need to go and research each one of the people who are on the board and also the executive officers and understand what's their background what have they done before have they grown other businesses before did they get kicked out of other businesses because they had problems or they weren't good um and also you know look over other things as well like i don't want this to sound like aegis or something but you know look at uh how old is the ceo is the ceo do you think they're going to retire soon if the ceo is 102 years old this could create some uncertainty for the business you know like if they're over 100 years old that could be a problem like hey you know statistically they might not live you know another five years if they're 102. so you need to take those things into consideration and not skip over researching the executive officers and the people who are on the board who end up making the biggest decisions for the company um so safely you send me i can just tell you this that he's actually he's been with the company for at least five years now and he's definitely done a lot for turning around the company um like i said i've been investing this company for a while so um okay so now we're actually getting into the the uh where we are here form 10k this is where the statement actually begins so those first 14 pages were just like a bunch of fluff now we're getting into the actual meat potatoes here so the most important stuff that we're going to do as we go through this is we're going to look at four key financial statements really three key financial statements it's going to be the income statement the balance sheet and the statement of cash flows okay so we're going to go ahead and scroll down to those now as we go through this before we get to that we'll see other things like for example you know risk factors you need to understand risk factors without a doubt what are the risk factors what are the potential problems um you know is this company susceptible to inflation uh could they have problems with trade wars like what are the biggest risks for this company every uh statement that i've read from companies they always have this in their report is going to be risk factors so definitely i'm always thinking about risk right legal proceedings most publicly traded companies a lot of them are involved in lawsuits almost every year they're just big companies it happens so uh read through that you know try to get a read on that and think about uh what's the potential that you know the company loses a lawsuit and has to pay out hundreds of millions of dollars it happens and it can negatively affect the stock of the company so read through those see what's going on what type of lawsuits are they in or who are they suing also they can get a big cash windfall as well if they sue somebody else okay so uh those are that's just like the outline there uh forward-looking statements we can just kind of brush through this real quick you know see the things that they're excited for uh what they think you know they're looking forward to uh in the future um but you know like i said make sure you read every single line here because these are going to be very very important okay so we're scrolling through here and i believe that the financial statements the most important part are around like page 45 or so so we're going to just kind of breeze through this here and we're going to read about you know what they do here the industrial gases business you really have to understand everything i mean genuinely uh to the point where you can walk into the company's headquarters and talk with anybody and understand what they're saying you know so that you're not totally clueless on what you know blue hydrogen brown hydrogen black hydrogen you need to understand all of those different things like if you're studying a business like this right so uh let's just continue going on through here what are the main products liquid bulk package on-site gases how does that operate um you know how are they selling these products like hydrogen oxygen nitrogen right how are they like getting helium what are their their margins everything else along those lines looking at international operations okay so let's just breeze through this here environmental regulation this is one of the actually the risks here for the company is that you know because they are in industrials they have to jump through a lot of hoops and for example maybe the epa will say you know we're moving the goal post and now you need to do this certain thing or you need to do this now and this could negatively affect the company obviously it's good for you know the earth so i definitely appreciate that but if you were considering investing into a company like this you know you definitely need to look at that so reading through here you know 20 000 employees safety compensation seasonality their business is not subject to seasonal fluctuations uh to any material extent that's really good to see so actually maybe we can look a little bit more quarter to quarter growth that could be pretty relevant um inventories customers right for example here there is no single customer that accounts for more than 10 of their consolidated revenues i always look for this because i've seen it before uh there are companies like there's one like nathan's famous hot dogs um uh they're really tiny cap um but like they have like a huge customer that like makes up most of their revenue and so if that customer drops them suddenly that company could be screwed so i always look for companies that have no single customer that accounts for more than 10 of their revenues that way if that customer walks and they find a new person to work with or company to work with this company doesn't get screwed so i always like to see that uh government contracts they definitely have a ton of government contracts um and just looking over their uh executive office officers as well uh their age you know like what they've done in the past all very important okay risk factors read through this obviously covid some other problems that they might have um you know just definitely read through all of these but let's actually start getting down to the financial statements because that's the part that's most important okay so we skipped through a couple of things they talked about pension and some other things that we want to be aware of um but we skip down to the consolidated income statement this is one of the most important documents that you can look at here um and so i'll try to go through each one of these lines and explain them to you and the importance of these but what i suggest doing uh because you want to understand this this is essentially like taking the blood pressure of a company and you know like doing what the doctor does to ensure that you're healthy you know looking at like your your heart rate and everything else like this is where you actually learn about the health of a company is in these three financial statements the income statement the balance sheet and the statement of cash flows we also have the shareholders equity we'll talk about that in a minute um so uh the consolidated income statement of course is in millions of dollars as well um so uh sales sales have grown they show us three years here 2021 2020 2019 sales have grown uh in 2021 considerably uh looks like about like one and a half billion dollars sales grew over the past year but that's not always going to be just the picture that we want to look at of course we want to see sales growing but you know more importantly i would argue is that we want to see income growing as well on those sales because if you make two times more money but you end up losing money you know because you're spending so much more to acquire customers or for your product then you know is it really worth it getting more sales you know that's an important question there so the cost of sales have increased uh as well so you know along with sales the cost of sales has has increased as well we have other things facility closure 23 million dollars selling an administrative 200 or sorry 828 million dollars research and development they sunk 93 million dollars into that i actually think that's really important i like when i see companies pouring money back into r d uh to create new products to create new you know things as well it's just going to be really important there and we have some other things as well in here but essentially what this comes out to when we take the sales and then we subtract some of these different things we'll see that our operating income is about 2.281 billion dollars and this is going to give us a better picture compared to sales so we can see you know let's compare our operating income this year compared to last year compared to the year before that and it looks like operating income uh from the outside is it looks like it's growing so that's good to see there so as you go through these uh if if there's something that you don't understand uh then honestly your best bet is just gonna be a quick google search for example equity affiliates income if you don't know what that is you just go smash the keyboard real quick and just google it and figure out what that is but you do need to understand each one of these lines here as you go through because there could be something that you don't understand and it could totally throw off your view of the company in fact i almost invested into a company last week i was very close to investing into it and i was reading over the financial statements and i found something in there that i realized totally skewed the numbers because they were counting ppp loan uh forgiveness from the government they were counting that as income on their income statement um and they were counting as like five million dollars of income um but you know like that that skewed the numbers and they were counting government money from covid as income and it was it was totally messed up the numbers and suddenly i realized the company actually wasn't that profitable anymore uh once i was able to dissect that and figure out what was going on there and i'm really happy that i did that because otherwise i would have invested into a company that wasn't actually making that much money um so you know going through here uh we have income uh and then we can start to subtract things uh there's something called ebitda e b i t d a ebitda and so that's going to be uh earnings before uh interest taxes depreciation amortization um so what this is gonna be is you know we can start to subtract some of these things like for example income from continuing operations before taxes then we look at taxes we have to subtract 462 million dollars in taxes uh some other things as well like discontinued operations if you sell off certain parts of the business like they sold off their chemical business a while ago they might have to uh subtract some of those things as well if they've lost some income there and some other things as well to give us the total net income for our products which comes out to about 2.1 billion dollars on the year um compare that to last year and you know their net income is growing which is really great to see so their sales are growing and also their net income is growing those are both beautiful metrics and it's probably i would expect to be reflected in the stock price um if you know we see that growing so 2.1 billion dollars in net income then they'll just break down essentially what we just learned there but on a per share basis as well if that's something that you want to look at and understand i tend to really you know focus on these numbers though so that is the income statement all right so now we're talking about balance sheets this is my favorite thing to look at and so what we have here is a basic formula we have assets equal liabilities plus shareholders equity this is another thing that you'll learn in a very like entry-level accounting class so what we have here we have 2021 versus 2020 and so let's go through each one of these lines here as well you'll see a recurring thing you'll see things like current assets or current liabilities and non-current assets and the basics of this without going into too much detail is that current assets or liabilities are going to be things that are very much near term or pretty liquid so you know things like cash or inventories or prepaid expenses short-term investments and then non-current will be things that you know you can't really liquidate easily or you can't it's hard to put like a price on them specifically that you could sell um and so like you know for example like plant and equipment or goodwill goodwill is essentially uh like just the name of the company and some other things along those lines and like like just yeah so um let's take a look at this here so cash and cash items in the balance sheet on the company and like i said uh assets will have to balance out with liabilities and equity so let's go through these lines here so 4.468 billion dollars in cash uh their cash is down from last year we need to figure out why that's the case you know this could be concerning but you know it doesn't have to be considered right off the bat we need to just figure out why has cash declined and have they made up for it somewhere else on this balance sheet because you know maybe they have less cash but perhaps they have no more inventory and so they just kind of shifted some assets around we need to figure that out um short-term investments the short-term investments are up about 200 million dollars over the course of the year and their trade receivables are up about looks like about you know almost 200 million dollars about 180 million dollars over the past year as well and their inventories are up about uh looks like you know almost uh 50 million dollars as well and their prepaid expenses um are down a little bit there um and then their other receivables and current assets are up so overall um their total current assets are down by about you know just quitting like numbers in my head here are down about 300 million dollars uh in current assets over the course of a year so not necessarily like a huge red flag but it's definitely something that you know we want to just keep an eye on and make sure that they aren't bleeding out cash somewhere and we'll learn more about that in the next financial statement which is the statement of cash flows to see like where that cash is actually going to and flowing to um and so now let's look at some of these assets that are not current um so investment in net assets and advances to equity affiliates that has gone up about uh you know looks like about 200 and 100 220 million dollars um plant and equipment this has gone up a lot it's gone up about like 1.3 billion dollars am i doing this math right yeah it looks like it's got about 1.3 billion dollars so that's quite a bit and you can see right here that you know air products they have 13.2 billion dollars of value in their equipment and in their plants they have huge huge plants down in texas and some other places and over in china all over the world they have massive plants in germany and some other places and so those are worth a lot of money now how do they value those that's a whole other question for a whole nother day that you can dig into and figure out how they put a valuation on those plants and equipment but overall you know okay that's good to see they have 13 billion dollars in in that that's that's pretty impressive honestly uh intangible assets uh this could be any miscellaneous intangible assets so i'm not sure what this like what the specific specific ones could be this could be like all kinds of random things like like trucks or something weird that doesn't fit into plant and equipment or something along those lines um and then we have some other ones as well lease receivables other non-current assets so overall their non-current assets 18.4 billion dollars compared to last year uh 16.4 billion dollars so that's up about 2 billion so overall actually the total assets for air products has increased uh a bit you know looks like like 1.7 billion dollars uh over the course of the year and that is what i like to see so you know you can look at current assets but at the end of the day you want to look at general assets as well to see if it's increasing or decreasing and if it's decreasing why is it decreasing we need to get to the bottom of that do they have a lot of debt we'll figure that out in the next segment here and if i'm moving too quickly i do apologize but you know there's just so much to cover here uh and like i said your best bet is going to be reading some accounting books or some deep financial analysis books to get a full understanding of this but the one of the most important things on this balance sheet here is looking at total assets are they growing or are they declining um and you know like other things for example like are they selling off their equipment doesn't look like it they're building up more equipment that's good you know it's good to see um okay so now let's talk about liabilities and equity so remember assets equals liabilities plus equity okay and so current liabilities and then we have long term you know liabilities total liabilities um so current liabilities argue the ones that are pretty near term here so we have accounts payable uh this is 2.2 billion dollars this has gone up now this is the type of thing that we don't like to see increasing too much um because these are going to be your debts here right your current liabilities things that you owe so we want to see assets increasing but we don't want to see liabilities increasing too much we want to see almost those going down and it's not you know like all of this of course like there's so many different factors you have to take into account that you can't just specifically say that something is bad like this right here we can look and see that okay their liabilities here have gone up for accounts payable that doesn't necessarily mean that it's bad sometimes companies will bring on more debt to finance their operations imagine if you could borrow a billion dollars at a two percent interest rate uh and then take that money that you borrowed and return 15 because you invested into a new project that ends up making more money so companies like should use debt and there's a certain level of debt that it seems to be like a safe margin for companies um and in fact if a company doesn't have many liabilities at all and they're not using any type of leverage that's almost kind of a turn off as well because you know the company might not be using their assets properly and they should be using some debt some level of debt to get a better growth rate um so continuing on here you know income taxes short term borrowings and all of this comes out to 440 484 billion dollars is their current portion of long-term debt um so overall you know their current liabilities have increased over the past year their long-term debt has decreased over the past year that's nice to see um and then so just kind of looking over this here you know uh right now their non-current liabilities which is like their long-term stuff has gone down and their total liabilities have gone it looks like they've gone up about 50 million dollars over the course of a year so just looking at this here we see assets have increased um you know quite a bit over a billion dollars and their liabilities have only increased about 50 million dollars so that shows that the company is pretty healthy from my perspective and of course you know we want to peel back more layers there but that's just we're doing a quick and dirty analysis here and now we're looking at the shareholders equity um and so we can see how many shares are there there are 249 million shares of the company and so this number can actually fluctuate uh companies can do share buybacks um they can you know do things where they will basically buy back shares lower the amount of shares in the pool uh which basically means you own more of the company um and you know it's it's overall like a lot of shareholders do like that um but let's see some of the things here uh that we have uh but at the end of the day it comes out where uh let's say okay total equity 14 million dollars last year it was 12.4 million dollars the shareholders i'm sure are very happy about that um but what you're going to notice here is that liabilities and equity once again 26.8 billion dollars it averages out with the total assets these numbers have to be the same this is why it's a balance sheet it has to balance okay so 26.8 billion dollars in assets 26.8 billion dollars in liabilities and equity so that is the balance sheet uh now let's talk about the cash flow statement uh and this is going to help you get a better picture of when we just looked at the balance sheet and we just looked at the income statement this is going to help us get a better picture of you know what's happening within the company where's this cash actually flowing to where's the money flowing to and so this is where we're going to get that picture there so we have our net income for air products about 2.1 billion dollars discontinued operations once again the parentheses are going to be basically subtracting from certain things so we lost about 70 million dollars from discontinued operations and then we have some other things depreciation 1.3 billion dollars how much are we depreciating sometimes companies will do different things where they'll depreciate assets at a faster rate or they'll do some other different things like accounting gets very very weird very confusing there's a lot of different routes you can take so you do want to understand that uh as well i i just i love accounting i'm weird um but it's it's definitely something that you should take up a passion for if you want to really be a decent investor so deferred income taxes deferred means just pushing off taxes 94 million dollars um you know sometimes that can happen for a variety of reasons usually just because they can facility closure 23 million dollars we're subtracting things like you know the gain on a sale of assets and investments share based compensation non-current lease receivables uh you know just go through each one of these understand uh these you know trade receivables inventories uh payables and accrued liabilities um and you know feel free to take breaks as well throughout because you know this takes a lot of time to fully understand so now let's take a look at uh for example like investing activities right and we can see where money was flowing for investing activities we just looked at operating activities up here in this whole segment here right these were all operating activities now we have uh investing activities so for example we had 2.468 billion dollars flowing into additions to plants and equipment long-term deposits on those acquisitions uh 10 million dollars right we had other things as well proceeds from the sale of assets and investments purchases of investments 2.1 billion dollars they've been pouring a lot of money into that proceeds from investments then uh so there's cash flowing in from the investments that we've made and the ones that we are making now so there's you know more money flowing out there understandable i like to see companies investing back into the business i'd like to see them starting new projects i think that's really important to continue growth and you know make sure that that company actually still has a moat and that their competitors don't creep up on them too quickly and then financing activities as well so long-term debt payments on long-term debt and then here you see this big number uh 1.2 billion dollars this looks like this is going to be the dividends i believe i wish they had these blue lines like the blue and white line so we could line up the number without you know w so yeah so uh dividends paid to shareholders 1.2 billion dollars uh i love stocks that pay dividends i mean they pay out 1.2 billion dollars to their shareholders every year giving back essentially cash to people who own this company i think it's great i just love to see them um i think right now the company's paying out like a two and a half percent dividend um and you know of course as i said earlier this is not like an inducement to buy this stock it could certainly go down it's just um a company that you know we're analyzing here today and at the end of the day after reading 134 pages you might decide you know what i've read all this but i'm still not convinced and i don't want to invest into it um and you know that happens to me a lot i would say probably after doing a deep dive into you know companies i'd probably only invest into maybe one out of every seven or eight companies that i will really do a deep dive on um and and that's okay you know um but uh just kind of like filtering through the rest of these here some of these can be pretty self-explanatory and you might see different uh numbers on here or or different uh like descriptions uh based on you know the report that you're looking at so companies might use some slightly different terminology as well then we have the statements of equity this is going to be the fourth financial statement um you know this one it's i don't want to say that it doesn't matter as much but it's one that you probably are going to spend a little bit less time on it's just basically looking at uh when we look at shareholders equity this is basically who owns the company and you know how how is that performing and some other things like dividends that are being paid out to them share based compensation for like executives for an example and some other important things in there but those are the most important things that i look at when i am analyzing a stock and of course you know we're only halfway through this runs page 74 out of 134 but all of this is is is going to be different for every business uh specifically so i don't want to bore you with some of these things reading about income taxes um and short-term investments and credit losses uh for this specific company because you know like i said it's gonna be different for everyone um so that is how i analyze a stock it definitely takes a lot of time so i hope you found this video to be pretty valuable if you did make sure you subscribe drop a like on the video i definitely would appreciate it and once again if you want to get those five free stocks on moomoo you can sign up for that using the link below in the description uh if you want to get started investing so let me know what videos you want to see next on the channel i mean we can go more in depth if you want i feel like this was already somewhat in depth i mean unless you want to see me sitting there quietly for 10 hours straight you know we could we could do that if you really were interested so um thanks for watching the video and i will see everybody in next week's video

Channel: Nate O'Brien

Views: 252,766

Keywords: nate o'brien, how investing works, how to buy stocks, how to invest, how to invest in stocks, how to invest in the stock market, how to invest money safely, how to safely invest money, investing, investing 101, investing for beginners, investing for beginners guide, investing in stocks for beginners, nate obrien, stock market, stock market crash, stock market for beginners, stock market live, stock market news, stocks, stocks for beginners, picking stocks, stock analysis

Id: OJ4tuMy4IEU

Length: 50min 6sec (3006 seconds)

Published: Tue Mar 01 2022