A sound investment decision is based on an analysis of key data that seeks to explain how profitable a business venture can be within specific constraints of time and cost. The financial risk of loss proliferates throughout the investment cycle of any given business venture including stocks, bonds and real estate markets. To avoid losses and to also increase business profits, a potential investor must understand how to interpret financial statements of the business they are about to invest in.
A financial statement may exist as a cash flow statement, an income statement or a balance sheet statement. An investor’s understanding of how much a stock or a company is worth and how the stock is performing is based on their ability to interpret and manipulate information presented in these three documents. Financial statements show the income of the stock, the amount of debt taken by the company issuing the stock among other financial indicators. Fundamental analysis of a stock helps the investor to avoid ventures with below-average profit margins and to understand debt levels in the company issuing the stock; unsustainable debt has the likelihood of bankrupting the company and the investor as well.
In a fast-changing business environment, many online investing courses are designed with practicability to explain to a learner the key metrics a potential investor should focus on. A majority of theoretical learning common in academic learning is summarized and more focus and attention is given to highlight the calculations of main financial ratios. For instance, the Debt-to-Equity ratio is a financial ratio that tells an investor how borrowed funds equate to owner’s funds in a company while Return-on-Equity ratio demonstrates the profitability and competitiveness of stock in a stock market.
Online investing courses are also popular because they allow the learner to study at their own convenient time. These courses are often accompanied by study materials such as spreadsheets provided by the tutor to assist in learning. That way, the learner gets a practical understanding of how changes in costs input affect outputs such as profit margins and payback periods. Spreadsheets are an efficient form of financial models used to assess and calculate the profitability of a company or a stock before the investor buys the stock.
The use of spreadsheets in financial analysis of stock and other assets is quite powerful. Often, a spreadsheet is made of inputs, calculations and output data. Inputs seek to capture business costs including interest rates and other market conditions such as sale prices; inputs directly affect and determine the value and performance of a stock. Calculations in the spreadsheets are formula-based and produce output data required for decision making and comparison to other stocks.
A good value spreadsheet will differentiate input and output data and should show financial data for multiple years for the generation of a performance trend of the stock in question. A ratio such as Return-on Equity should be presented for more than one year to guide informed decision making. A sound spreadsheet should also be dynamic and allow for customization such that the learner/user can vary the inputs and test the value of the stock under different market conditions.
Many spreadsheets incorporate a sensitivity analysis where a potential investor can gauge the performance of the stock under boom or bust cycles or when key inputs change. An investor would like to understand the Return-on Equity ratio when, for instance, interest rates rise or other operational costs also rise. All the input data in a spreadsheet is linked methodically such as a change in inputs flows systematically throughout the structure of a spreadsheet and is observed on the output section.
In as much as spreadsheets are an important part of financial analysis, the user will need to learn basic investment theory and to understand how to build or use a spreadsheet in financial analysis of a stock. This is the gap that online investing courses seek to fill. The learner needs to understand the impact of changes in the cost to the overall profitability of the stock as demonstrated using a financial model or a spreadsheet. Online investing courses provide a learning platform as an alternative to classroom studies with the use of spreadsheets which the learner finds very practical.