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I am new to investing and just started practising on a simulator. I wrote a program on Matlab and to analyse various fundamental aspects of a company. These are the aspects computed my program,

A. Income statement

  1. Revenue growth % (each year for last 5 yrs and each quarter for last 5 quarters)
  2. Cost of revenue growth % (each year for last 5 yrs and each quarter for last 5 quarters)
  3. Operating income growth % (each year for last 5 yrs and each quarter for last 5 quarters)
  4. Net income growth % (each year for last 5 yrs and each quarter for last 5 quarters)
  5. Total operating expense growth % (each year for last 5 yrs and each quarter for last 5 quarters)
  6. Gross profit margin % (each year for last 5 yrs and each quarter for last 5 quarters)
  7. Operating profit margin % (each year for last 5 yrs and each quarter for last 5 quarters)
  8. Net profit margin % (each year for last 5 yrs and each quarter for last 5 quarters)

B. Balance sheet

  1. Cash. Eq growth % (each year for last 5 yrs and each quarter for last 5 quarters)
  2. Longterm debt growth % (each year for last 5 yrs and each quarter for last 5 quarters)
  3. Total equity growth % (each year for last 5 yrs and each quarter for last 5 quarters)
  4. Working capital % (each year for last 5 yrs and each quarter for last 5 quarters)
  5. Total accounts receivable growth % (each year for last 5 yrs and each quarter for last 5 quarters)
  6. Total accounts payable % (each year for last 5 yrs and each quarter for last 5 quarters)
  7. Total inventory growth % (each year for last 5 yrs and each quarter for last 5 quarters

C. cashflow Statement

  1. High quality earnings growth % (each year for last 5 yrs and each quarter for last 5 quarters
  2. Free cashflow growth % (each year for last 5 yrs and each quarter for last 5 quarters
  3. Company lifespan growth % (each year for last 5 yrs and each quarter for last 5 quarters

D. Discounted cash flow to determine if the stock is cheap (projected to 5 years)

So my question is with all these information and plots, how does one decide whether or not to invest in a company. Some of these aspects are positive for some companies and negative for some others. It is also worth noting that penalising a company just because of a few negative aspects are erroneous. I was thinking of a implementing a points systems to assist my decision. Any thoughts on this?

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The degrees to which a positive is positive and a negative is negative are up to you. There is no correct answer.

A couple points of caution:

  • You're never checking the company's market cap/share price or deriving what you deem to be a "fair value", only whether or not some data points have grown.
  • It's not uncommon for one time charges to weigh on parts of a company's income statement or balance sheet.
  • It's not uncommon for some part of a balance sheet/income statement to be recategorized
  • Mergers, acquisitions and divestitures would also need a critical eye to determine they're impact to a company's finances and future prospects

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