← Case Studies · about 60 min
Study a company
How to read a company's numbers before you ever think about owning a piece of it.
Educational content only, not financial advice. Nothing here is a recommendation to buy or sell any investment.
Before we start
This lesson is educational only. It is not financial advice and does not recommend buying or selling any stock. The goal is to learn how to ask good questions about a business.
Owning a stock means owning a tiny piece of a real business. So the first question is never "will the price go up?" It's "is this a good business, and what am I paying for it?"
The numbers that matter
- Revenue (sales)
- All the money customers paid the company in a year. The "top line".
- Net income (profit)
- What's left after paying every cost and tax. The "bottom line". Can be negative (a loss).
- Profit margin
- Profit ÷ revenue. How many cents of each sales dollar the company keeps.
- Debt
- Money the company owes. Some is normal; too much can sink a company in a bad year.
- Market cap
- Share price × number of shares. What the market says the whole company is worth.
- EPS (earnings per share)
- Net income ÷ number of shares.
- P/E ratio
- Share price ÷ EPS. How many dollars investors pay for $1 of yearly profit. A high P/E means people expect a lot of growth.
Worked example: Sunny Snacks Co. (made up)
Sunny Snacks (a pretend company) had $2.0 billion in revenue and $150 million in net income last year. It has 100 million shares, the stock trades at $30, and it owes $600 million in debt.
- Profit margin
$150M ÷ $2,000M = 7.5% - EPS
$150M ÷ 100M shares = $1.50 per share - P/E ratio
$30 ÷ $1.50 = 20 - Market cap
$30 × 100M shares = $3.0 billion - Debt compared with a year of profit
$600M ÷ $150M = 4 years of profit
Investors pay $20 for every $1 of yearly profit, and it would take four years of profit to pay off the debt. Neither is good or bad alone. You compare them with similar companies and with the company's own past.
Good signs and warning signs
| Good signs | Warning signs |
|---|---|
| Revenue growing steadily for years | Hype: the price jumps on buzz and social media, not results |
| Profitable, with margins holding up | Depends on one product or one big customer |
| Debt it could pay off with a few years of profit | Heavy debt and shrinking profits |
| Customers come back (loyalty, subscriptions) | Leaders brush off new competitors (remember Nokia) |
| Clear explanation of how it makes money | You can't explain what it sells in one sentence |
One stock vs. many
Even professionals who study companies full time often fail to beat the overall market. Nokia was a "safe" giant until it wasn't. That's why most beginners start with diversification: owning many companies at once, usually through a low-cost index fund. If one company collapses, it's a small slice of your money.
Studying individual companies is still valuable. It teaches you how businesses work, makes you a smarter employee and customer, and helps you see through hype.
Your turn: the worksheet
Pick a public company you know: one whose products you use. Look up its numbers on a free site like the company's investor relations page or its annual report (Form 10-K) on the SEC's EDGAR website. Then fill out the printable worksheet.
Practice
A company has $500 million in revenue and $50 million in profit. What's its profit margin?
Show answer
$50M ÷ $500M = 10%.
A stock trades at $45 and the company earned $3 per share. What's the P/E?
Show answer
$45 ÷ $3 = 15.
A company has 2 billion shares at $25 each. What's its market cap?
Show answer
2 billion × $25 = $50 billion.
Company A: P/E 12. Company B: P/E 60. What does the difference tell you?
Show answer
Investors expect much faster growth from B. If B's growth disappoints, its price has further to fall.
Revenue went from $800M to $1,000M in one year. What's the growth rate?
Show answer
($1,000M − $800M) ÷ $800M = 25%.
Can you…
Sources and dates
- SEC EDGAR: company filings search · as of Oct 2026
- Investor.gov (SEC): Diversify your investments · as of Oct 2026
- Investor.gov (SEC): Index fund · as of Oct 2026