Chapter 1 Company Management & Hierarchy
The first question you may have is what exactly is
fundamental stock analysis. While technical stock analysis
can be related to the personality of a stock, fundamental
stock analysis is the health of the company. Think of the
technicals of the stock as the personality while the
fundamentals are the overall health if you're thinking about
a person. Fundamental stock analysis is the study of the
Financial Health and Fitness of a company. The main factors
analyzed in fundamental stock analysis are Revenue,
earnings and debt, and the goal of fundamental analysis is
to determine the intrinsic value of a stock, and we're going
to Define intrinsic value a little bit later on. In a nutshell
when we're looking at fundamental stock analysis, we're
looking at the company Revenue, what their earnings are so
what they're actually keeping of that revenue and how
much debt they have and there are a number of financial
documents that we're going to be analyzing that are really
going to paint the picture of the Financial Health of this
company because it's very similar to your own personal
financial Health. You can see somebody who is in poor
Financial Health when they have too much debt and there's
also people who have a lot of cash and they don't have a lot
of debt - that same thing holds true with companies. You'll
find companies out there some of them have a lot of debt
and some of them have very little debt and they have a lot
of cash. Essentially what you're doing is determining the
health of that company financially and making sure that
they're in a good position to repay those obligations as well
as grow in the future. The very first thing that we should talk
about when it comes to fundamental stock analysis is
something that really has nothing to do directly with the
numbers but indirectly this will impact spending and debt
and that is the management. That is because a ship is of no
use without a good Captain, so one factor you need to
consider when analyzing a company is the management of
that company because ultimately what you're looking to
determine is whether or not the company is being run well.
The best place to start is with the board of directors and if
you have heard this before or maybe you've even been an
investor in stocks and you've been sent around a voting
proxy where you're voting on board of directors that is why
you're familiar with this, because these individuals are
elected to represent the shareholders and create
management policies as well as decide on major company
decisions. Shareholders with voting rights elect the
members. This is another reason why voting rights are just
so important to you. If you're going to be a long-term
investor in a company I hope that you are going to take the
time to study the management and learn about the
management and then when it comes time to vote on the
board of directors and different management employees
that you're actually going to take the time to learn about
these people and make good decisions based on what you
envision for the company because at the end of the day,
you're part owner of that company and you're going to want
to make decisions or use your vote to allow the company to
make the decisions in their best interest or at least which
you believe is in their best interest. Just like with local
politics and elections, you want to learn about the politicians
and the people that are running and decide who you feel is
a best fit for the job and I encourage you to do the same
thing when you're looking at the voting proxies for the board
of directors and other management members of a company.
This is why I always invest in companies that allow you to
have voting rights or it's like one of my main things. The
cofounders have complete control over who was elected and
the shareholders have no voice. Now let’s look at the
hierarchy of a corporation and I just want to give you an
idea of what the food chain looks like. The shareholders are
at the very top of the company and below that they elect
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