How to analyze a company

I develop MoatCheck, which is mentioned in this guide.

1. Understand the business

Write down what the company sells, who pays, how it reaches customers and what makes a customer stay. If you cannot explain the business in a few sentences, more research is probably needed before interpreting financial ratios.

2. Map the industry

Identify competitors, suppliers, substitutes and the factors that determine price and demand. Industry structure matters because a good operator in a difficult market may face different constraints from a good operator in a concentrated one.

3. Read the economic model

Look at how revenue becomes operating profit and cash. Ask which costs are fixed, which are variable, how much reinvestment is required and whether growth creates or consumes cash. Compare several periods instead of treating one quarter as a complete story.

4. Test the competitive position

List the company’s claimed advantages and ask what would stop a competitor from copying them. This is where concepts such as switching costs, network effects, cost advantages and pricing power become useful. MoatCheck can help organize a first pass through public information.

5. Write down what could go wrong

Include competition, regulation, concentration, execution, balance-sheet pressure and changes in customer behavior. A good research note should explain what evidence would change your mind, not only why the company looks attractive.

6. Separate research from a decision

Understanding a company does not automatically tell you what price is reasonable or whether it fits your circumstances. Keep those questions separate and make uncertainty visible.

Note: This is educational content, not investment advice or a recommendation to buy or sell any security.

Separate profit, cash and valuation

Fictional example: revenue is 100, operating profit 15 and operating cash flow 8, while capital expenditure is 6. The gap between profit and cash merits checking working capital and non-cash items. Operating cash flow minus capital expenditure gives 2 in this simplified illustration, not a universal definition of distributable cash. Even a strong business can be an unattractive investment at a particular price. Keep business quality and valuation separate.

Keep an evidence trail

For each conclusion, note the filing date, period, document section and a short fact supporting it. Separate management’s claim from your inference and record missing evidence. MoatCheck can structure a first pass; verify its output against the filings. This is educational research, not a recommendation to buy or sell a security.