Course 02 · Next

Reading the numbers

Four lessons on the statements behind a ticker. You will see what revenue is not, how a house explains a balance sheet, and why a price-to-earnings ratio is a comparison rather than a verdict.

1. 01Revenue is not profitThe income statement covers a stretch of time. Sales come in at the top. Profit is what survives the costs.
2. 02What is owned, and what is owedA balance sheet is one date, not a year. Assets equal liabilities plus the owners’ residual claim.
3. 03The price-to-earnings ratioP/E divides price by earnings. It tells you the multiple. It does not tell you what to do.
4. 04Debt changes the pictureEBITDA looks at operations before interest and some accounting charges. Enterprise value folds debt and cash back into the price tag.