It's understood that investors typically evaluate companies based on earnings. But what if there are no earnings, such as with young upstart companies or firms in temporarily tough times?
That's when you should focus on other measures instead. (And besides, you should always be looking at other measures, anyway.) Check out revenues, for example, and revenue growth rates, and profit margins, and debt levels, and competitive positioning, and brand strength, among many other things. You essentially want to evaluate whether the company is on the path to profitability and how well it's executing its strategy.
Ideally, you want to be able to estimate its true value, and compare that with its current value, to see whether you're looking at a buying opportunity. If you're serious about wanting to learn how to read financial statements and evaluate companies, check out our well-regarded How-to Guides. They cost a little money (very little) and offer money-back guarantees, so you've little to lose and a lot to gain. We'll teach you a lot in an organized, easy-to-follow way.
The following Fool articles can enlighten you even more on the topic of value and the evaluation of companies:
- Unlocking the Secrets of Value
- Profit From Pessimism
- Contrary to Popular Opinion
- The Bargain Hunter
- Beat the Street With Value
- Winning Ugly With Value
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