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Part II: The Tools > The Trend Workbook: Breaking the Code

Chapter 8. The Trend Workbook: Breaking the Code

In any attempt to judge a corporation's fundamentals, the test criteria involve two broad levels: company-specific analysis and comparative analysis. We all have standards for judging corporate outcomes considered acceptable. Among these are tests of gross profit and net return, for example; we hope to see consistent levels in the gross and net outcomes and, hopefully, not a declining relationship.

When sales fall and expenses rise, resulting in a deteriorating net return, we consider that a company-specific negative outcome. Comparative outcomes are equally important, notably when we are trying to decide which stocks to buy or hold and which to sell. In the following sections, we evaluate the same companies covered in the previous chapter, with extended interpretations provided. Developing raw material into an actual opinion, or “breaking the code” of what the annual report reveals for us, is the essence of analysis. Once we know where to find the basic information, interpretation becomes possible, and we do not need special education to be able to go to this next step.


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