2527 Fundamental Analysis 2d0ee6d4

# Fundamental Analysis Reference

## Analysis Framework

### 1. Business Quality Assessment

**Competitive Advantages (Moats)**
- Brand strength
- Network effects
- Cost advantages
- Switching costs
- Patents and intellectual property
- Regulatory barriers

**Management Quality**
- Track record of capital allocation
- Insider ownership
- Compensation structure alignment
- Communication transparency

**Business Model**
- Revenue streams diversity
- Scalability
- Margin sustainability
- Customer concentration risk

### 2. Financial Health Analysis

**Profitability Analysis**
- Gross margin trends
- Operating margin trends
- Net margin trends
- Return on Equity (ROE) trends
- Return on Assets (ROA) trends
- Return on Invested Capital (ROIC) trends

**Growth Analysis**
- Revenue growth (YoY, QoQ)
- Earnings growth (YoY, QoQ)
- Free cash flow growth
- Market share trends
- Geographic/segment growth breakdown

**Balance Sheet Strength**
- Debt-to-Equity ratio
- Current ratio
- Quick ratio
- Interest coverage ratio
- Cash position vs debt
- Working capital trends

**Cash Flow Analysis**
- Operating cash flow consistency
- Free cash flow (OCF - CapEx)
- Cash conversion rate
- Capital expenditure trends
- Dividend sustainability

### 3. Valuation Analysis

**Relative Valuation Metrics**
- P/E ratio (vs historical, vs peers, vs sector)
- Forward P/E
- PEG ratio (P/E / growth rate)
- P/B ratio (Price-to-Book)
- P/S ratio (Price-to-Sales)
- EV/EBITDA (Enterprise Value / EBITDA)
- EV/Sales

**Absolute Valuation**
- Discounted Cash Flow (DCF) principles
- Estimate intrinsic value range
- Margin of safety calculation

### 4. Industry and Market Analysis

**Industry Dynamics**
- Industry growth rate
- Industry lifecycle stage
- Competitive landscape
- Barriers to entry
- Regulatory environment
- Technological disruption risk

**Market Position**
- Market share
- Competitive positioning
- Customer loyalty metrics
- Pricing power

### 5. Risk Assessment

**Company-Specific Risks**
- Key person dependency
- Customer concentration
- Supplier concentration
- Product concentration
- Litigation risks
- Regulatory risks

**Market Risks**
- Economic sensitivity
- Interest rate sensitivity
- Currency exposure
- Commodity price exposure

## Analysis Workflow

1. **Understand the business** (what they do, how they make money)
2. **Assess competitive position** (moats, market share)
3. **Analyze financial statements** (trends over 3-5 years)
4. **Calculate key metrics** (profitability, growth, leverage)
5. **Compare to peers** (relative positioning)
6. **Value the company** (multiple approaches)
7. **Identify risks** (company and market level)
8. **Determine investment thesis** (bull and bear cases)

## Red Flags to Watch For

- Declining margins
- Consistently negative or declining free cash flow
- Rising debt without revenue growth
- Frequent non-GAAP adjustments
- High executive turnover
- Customer concentration > 10% from single customer
- Inconsistent accounting changes
- Poor cash conversion (earnings growth >> cash flow growth)
- Deteriorating working capital
- Rising accounts receivable/inventory faster than revenue