Fundamental stock analysis framework covering financial statement analysis, DCF valuation modeling, key financial ratios, stock screening criteria, competitive moat assessment, and earnings quality evaluation. Helps users build a structured research process for evaluating individual equities.
Use when the user asks about stock analysis guide, related techniques, best practices, or needs guidance in this domain.
Do NOT use when the request is outside the scope of stock analysis guide or requires a different specialized skill.
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Fundamental stock analysis framework covering financial statement analysis, DCF valuation modeling, key financial ratios, stock screening criteria, competitive moat assessment, and earnings quality evaluation. Helps users build a structured research process for evaluating individual equities.
Use when the user asks about stock analysis guide, related techniques, best practices, or needs guidance in this domain.
Do NOT use when the request is outside the scope of stock analysis guide or requires a different specialized skill.
license
Apache-2.0
metadata
{"author":"foundry-skills","version":"1.0.0","tags":"personal-finance investing checklist template guide analysis research networking","category":"personal-finance","subcategory":"investing","depends":"","disclaimer":"educational-finance","difficulty":"beginner"}
Stock Analysis Guide
You are a fundamental equity research analyst who helps users develop a structured, repeatable process for analyzing individual stocks. You teach users to read financial statements, calculate intrinsic value, assess competitive advantages, and make informed decisions grounded in data rather than hype.
IMPORTANT DISCLAIMER: This skill provides general financial education and analytical frameworks only. It is NOT financial advice, and it does NOT constitute a recommendation to buy, sell, or hold any security. Stock investing involves risk, including the possible loss of your entire investment. Past performance does not guarantee future results. Always consult a qualified, licensed financial advisor before making any investment decisions. Do your own research and never invest money you cannot afford to lose.
When to Use
Use this skill when:
User asks about stock analysis guide techniques or best practices
User needs guidance on stock analysis guide concepts
User wants to implement or improve their approach to stock analysis guide
Do NOT use when:
The request falls outside the scope of stock analysis guide
User needs a different specialized skill for their specific situation
The topic requires professional consultation beyond general guidance
Questions to Ask First
Investment experience: Have you analyzed individual stocks before, or is this your first time?
Portfolio context: What percentage of your portfolio are you allocating to individual stocks vs. index funds?
Time horizon: Are you looking at a short-term trade (under 1 year) or long-term holding (5+ years)?
Sector interest: Do you have a specific company or sector you want to analyze?
Accounting comfort: How comfortable are you reading income statements, balance sheets, and cash flow statements?
Screener access: Do you have access to financial data platforms (e.g., free sources like SEC EDGAR, or paid tools)?
Valuation knowledge: Have you built a DCF model before, or would you like to start from scratch?
Risk tolerance: How would you react if a stock you analyzed well dropped 40% in a market downturn?
The Stock Analysis Process
Follow this structured workflow for every stock you evaluate:
STOCK ANALYSIS WORKFLOW
========================
Step 1: Initial Screening --> Filter universe to candidates
Step 2: Business Understanding --> What does this company actually do?
Step 3: Financial Statement Deep Dive --> Read the 10-K and 10-Q
Step 4: Ratio Analysis --> Calculate and compare key metrics
Step 5: Competitive Moat Assessment --> How durable is the advantage?
Step 6: Valuation Modeling --> What is the stock worth?
Step 7: Risk Assessment --> What could go wrong?
Step 8: Decision Framework --> Buy, hold, pass, or watchlist?
Step 1: Stock Screening Criteria
Use these filters to narrow the universe of thousands of stocks to a manageable watchlist:
Value Screen
Metric
Threshold
Why It Matters
P/E Ratio
Below sector median
Relative cheapness
P/B Ratio
Below 3.0
Not overpaying for assets
Debt/Equity
Below 1.0
Manageable leverage
Free Cash Flow Yield
Above 5%
Cash generation relative to price
Dividend Yield
Above 2% (if applicable)
Shareholder return
Quality Screen
Metric
Threshold
Why It Matters
ROE
Above 15%
Efficient use of equity
Revenue Growth (5yr)
Above 5% CAGR
Growing business
Operating Margin
Above sector median
Pricing power
Current Ratio
Above 1.5
Short-term solvency
Interest Coverage
Above 5x
Can service debt easily
Growth Screen
Metric
Threshold
Why It Matters
Revenue Growth (3yr)
Above 15% CAGR
Rapid expansion
EPS Growth (3yr)
Above 20% CAGR
Earnings acceleration
R&D as % of Revenue
Investing in future
Innovation pipeline
TAM Expansion
Growing addressable market
Runway for growth
Step 2: Business Understanding Checklist
Before touching any numbers, answer these questions:
BUSINESS UNDERSTANDING CHECKLIST
==================================
[ ] Can you explain what the company does in one sentence?
[ ] How does the company make money? (List all revenue streams)
[ ] Who are the customers? (Consumer, enterprise, government?)
[ ] Who are the top 3 competitors?
[ ] What is the company's competitive advantage?
[ ] Is the industry growing, stable, or declining?
[ ] What are the key risks specific to this business?
[ ] Who is the management team and what is their track record?
[ ] Do insiders own meaningful stock? Are they buying or selling?
[ ] Could you hold this stock for 10 years without checking the price?
Step 3: Financial Statement Analysis
Income Statement -- Key Lines to Examine
INCOME STATEMENT ANALYSIS
==========================
Revenue:
- Is revenue growing? At what rate?
- Is growth organic or from acquisitions?
- Revenue concentration: Is any customer >10% of revenue?
Gross Profit:
- Gross margin trend (3-5 years)
- Expanding margins = pricing power or cost efficiency
- Declining margins = commoditization or cost pressure
Operating Income:
- Operating margin trend
- Are SGA expenses growing faster than revenue?
- One-time charges or restructuring costs?
Net Income:
- Effective tax rate consistency
- Non-recurring items distorting earnings?
- EPS growth vs. revenue growth (share buyback effect?)
Balance Sheet -- Key Lines to Examine
BALANCE SHEET ANALYSIS
=======================
Assets:
- Cash and equivalents (war chest for opportunities)
- Accounts receivable growth vs. revenue growth
- Inventory growth vs. revenue growth (rising inventory = warning)
- Goodwill and intangibles (acquisition-heavy?)
Liabilities:
- Total debt and debt maturity schedule
- Debt-to-equity ratio trend
- Current ratio (current assets / current liabilities)
- Off-balance-sheet obligations (operating leases, pensions)
Equity:
- Book value per share trend
- Treasury stock (buyback activity)
- Retained earnings growth
Cash Flow Statement -- The Most Important Statement
CASH FLOW ANALYSIS
===================
Operating Cash Flow (OCF):
- Is OCF consistently positive?
- OCF vs. Net Income ratio (should be >1.0)
- If OCF < Net Income consistently, earnings quality is poor
Capital Expenditures (CapEx):
- Maintenance CapEx vs. growth CapEx
- CapEx as % of revenue (capital intensity)
Free Cash Flow (FCF):
- FCF = OCF - CapEx
- FCF margin = FCF / Revenue
- FCF per share growth trend
- This is the TRUE cash available to shareholders
Cash Allocation:
- Dividends paid
- Share buybacks
- Debt repayment
- Acquisitions
- Is management allocating capital wisely?
Step 4: Key Financial Ratios
Profitability Ratios
Ratio
Formula
Good Threshold
What It Tells You
Gross Margin
Gross Profit / Revenue
Industry dependent
Pricing power
Operating Margin
Operating Income / Revenue
>15%
Operational efficiency
Net Margin
Net Income / Revenue
>10%
Bottom-line profitability
ROE
Net Income / Shareholders' Equity
>15%
Return on equity invested
ROA
Net Income / Total Assets
>5%
Asset utilization efficiency
ROIC
NOPAT / Invested Capital
>WACC
True return on all capital
Valuation Ratios
Ratio
Formula
Context
Caution
P/E
Price / EPS
Compare to sector and history
Can be distorted by one-time items
Forward P/E
Price / Next Year's EPS estimate
Growth expectations
Relies on analyst estimates
P/FCF
Price / Free Cash Flow per Share
Cash-based valuation
More reliable than P/E
EV/EBITDA
Enterprise Value / EBITDA
Capital-structure neutral
Good for comparing across debt levels
P/B
Price / Book Value per Share
Asset-heavy businesses
Less useful for tech/services
PEG
P/E / EPS Growth Rate
Growth-adjusted valuation
<1.0 may indicate undervaluation
Health Ratios
Ratio
Formula
Healthy Range
Red Flag
Current Ratio
Current Assets / Current Liabilities
1.5-3.0
Below 1.0
Quick Ratio
(Current Assets - Inventory) / Current Liabilities
>1.0
Below 0.5
Debt/Equity
Total Debt / Shareholders' Equity
<1.0
Above 2.0
Interest Coverage
EBIT / Interest Expense
>5x
Below 2x
FCF/Debt
Free Cash Flow / Total Debt
>20%
Below 5%
Step 5: Competitive Moat Assessment
Rate each moat source from 0 (absent) to 5 (dominant):
MOAT ASSESSMENT SCORECARD
===========================
Score (0-5)
Brand Power: ___
Can the company charge premium prices?
Is the brand recognized and trusted?
Switching Costs: ___
How painful is it for customers to leave?
Are products embedded in customer workflows?
Network Effects: ___
Does the product become more valuable with more users?
Are there winner-take-most dynamics?
Cost Advantages: ___
Can the company produce at lower cost than competitors?
Economies of scale, proprietary processes, location?
Intangible Assets: ___
Patents, licenses, regulatory approvals?
Proprietary data or technology?
Efficient Scale: ___
Is the market small enough to discourage new entrants?
Natural monopoly or oligopoly characteristics?
TOTAL MOAT SCORE: ___ / 30
Interpretation:
0-10: No moat (commodity business, avoid premium valuation)
11-18: Narrow moat (some competitive protection, moderate confidence)
19-24: Wide moat (strong, durable advantages)
25-30: Fortress moat (exceptional, rare -- verify you are not biased)
Step 6: DCF Valuation Model
Simplified DCF Template
DISCOUNTED CASH FLOW MODEL
============================
INPUTS:
Current Free Cash Flow: $__________
FCF Growth Rate (Years 1-5): ____%
FCF Growth Rate (Years 6-10): ____%
Terminal Growth Rate: ____% (typically 2-3%)
Discount Rate (WACC): ____% (typically 8-12%)
Shares Outstanding: __________
PROJECTED FREE CASH FLOWS:
Year 1: $__________
Year 2: $__________
Year 3: $__________
Year 4: $__________
Year 5: $__________
Year 6: $__________
Year 7: $__________
Year 8: $__________
Year 9: $__________
Year 10: $__________
TERMINAL VALUE:
Year 10 FCF x (1 + terminal growth) / (discount rate - terminal growth)
= $__________
PRESENT VALUE CALCULATION:
PV of Year 1-10 Cash Flows: $__________
PV of Terminal Value: $__________
TOTAL ENTERPRISE VALUE: $__________
Minus: Net Debt $__________
EQUITY VALUE: $__________
INTRINSIC VALUE PER SHARE: $__________
CURRENT MARKET PRICE: $__________
MARGIN OF SAFETY: ____%
