To The Moon

How to Analyze a Company’s Financial Statements

Analyzing a company’s financial statements is like cracking open its financial DNA—it reveals how healthy, profitable, and sustainable a business is. Whether you’re eyeing a stock like PLTR at $74.01 (April 6, 2025) or a blue-chip like Coca-Cola, these statements tell you what’s under the hood. The three key documents are the income statement, balance sheet, and cash flow statement. By digging into them, you can gauge if a stock’s price makes sense, spot risks, or find hidden gems. Here’s how to do it, step by step, with a nod to PLTR for context.

What Are Financial Statements?

Financial statements are standardized reports companies file (quarterly/annually) with regulators like the SEC (via 10-Q/10-K forms in the U.S.). They’re your primary source for hard data on performance, not just market hype (like PLTR’s AI buzz). The big three are:

Income Statement: Shows revenue, expenses, and profit over a period (e.g., a quarter).

Balance Sheet: A snapshot of assets, liabilities, and equity at one point.

Cash Flow Statement: Tracks cash inflows/outflows—where the money’s moving.

Step-by-Step Guide to Analysis

Here’s how to dissect each statement, key metrics to watch, and what they mean for a stock like PLTR.

1. Income Statement: Is the Company Profitable?

The income statement (or profit and loss statement) shows how much money a company makes and spends over time. It’s about revenue, costs, and net income.

Key Metrics:

Revenue (Sales): Top line—total money from goods/services. Higher growth signals strength.

Example: PLTR’s 20–29% revenue growth (Seeking Alpha, April 2025) shows AI demand.

Gross Profit: Revenue minus cost of goods sold (COGS). High gross margin (gross profit ÷ revenue) means efficiency.

Tech firms like PLTR often have 70–80% margins (software’s cheap to scale).

Operating Income: Gross profit minus operating expenses (e.g., R&D, marketing). Positive means core business is profitable.

Net Income: Bottom line—profit after all expenses, taxes, interest. Negative? Red flag unless it’s deliberate (growth firms reinvest).

PLTR’s net income is thin (high P/E 400+), prioritizing growth over profit.

Earnings Per Share (EPS): Net income ÷ shares outstanding. Wall Street loves it—higher EPS often lifts stock price.

PLTR’s EPS is low (e.g., ~$0.10, estimated), reflecting reinvestment.

What to Look For:

Trends: Is revenue growing? PLTR’s 36% commercial growth (Yahoo, April 4) is bullish.

Margins: Are profits sustainable? Shrinking margins signal cost issues.

Consistency: Erratic earnings (unlike Coca-Cola’s steady profits) raise risk.

PLTR Context: Strong revenue growth but low net income (typical for growth stocks). Compare to peers (e.g., Snowflake) to see if $74.01 justifies the hype.

2. Balance Sheet: Is the Company Stable?

The balance sheet shows what a company owns (assets), owes (liabilities), and what’s left for shareholders (equity) at a specific date.

Key Metrics:

Assets:

Current Assets: Cash, receivables (due within a year). High cash (e.g., Apple’s $60B) means flexibility.

Non-Current Assets: Property, patents. PLTR’s tech relies on intangibles (software IP).

Liabilities:

Current Liabilities: Debts due soon. High vs. current assets = trouble.

Long-Term Debt: Loans due later. PLTR’s debt is low (growth firms lean on equity).

Shareholders’ Equity: Assets minus liabilities. Negative equity (rare) is bad; growing equity signals health.

Debt-to-Equity Ratio: Total debt ÷ equity. <1 is solid; >2 is risky for most industries.

PLTR likely <0.5 (tech norm), vs. utilities at ~1.5.

Current Ratio: Current assets ÷ current liabilities. >1 means short-term bills are covered.

What to Look For:

Liquidity: Can it pay debts? PLTR’s $1.25B free cash flow (FY24, Seeking Alpha) is strong.

Debt Load: High debt + rising rates (2025’s Fed hikes) = risk. PLTR’s lean balance sheet dodges this.

Asset Quality: Cash > receivables. Too many intangibles (like PLTR’s IP) can be hard to value.

PLTR Context: Likely cash-rich, low debt—good for growth but check if assets are overhyped (AI patents aren’t physical factories).

3. Cash Flow Statement: Where’s the Cash?

This tracks cash moving in/out—crucial because profits (income statement) don’t always mean cash on hand. It’s split into three parts.

Key Metrics:

Operating Cash Flow: Cash from core business. Positive = healthy (PLTR’s $1.25B free cash flow shines).

Investing Cash Flow: Cash spent on assets (e.g., PLTR’s R&D) or gained from sales. Negative is okay for growth firms.

Financing Cash Flow: Cash from loans, stock sales, or dividends. Heavy borrowing or share dilution (PLTR issuing stock) is a warning.

Free Cash Flow: Operating cash flow minus capital expenditures. High FCF funds growth or payouts.

PLTR’s $1.25B FCF supports its $200B valuation (Nasdaq, April 2).

What to Look For:

Cash Generation: Operating cash > net income means real money, not accounting tricks.

Sustainability: Negative FCF (unlike PLTR) can’t last forever.

Dilution: Too many new shares (financing) hurts EPS—check PLTR’s share count.

PLTR Context: Strong FCF is a green light, but heavy R&D spending (investing) needs to yield growth to justify $74.01.

4. Key Ratios to Tie It Together

Ratios combine data from all statements to compare companies or spot trends:

P/E Ratio: Price ÷ EPS. PLTR’s 400+ = growth expectations; KO’s 25 = value stability.

Price-to-Sales (P/S): Price ÷ revenue per share. PLTR’s 50–77 (Yahoo, April 1–5) is high—growth bet.

Return on Equity (ROE): Net income ÷ equity. >15% is good; PLTR’s likely low (reinvestment).

Debt-to-Equity: Low for PLTR, safer than leveraged firms.

Gross Margin: High for PLTR (70–80% tech norm) vs. KO (~60%).

5. Compare to Peers and Industry

PLTR vs. Tech: Stack PLTR’s 20–29% growth, 400+ P/E against Snowflake (P/E ~200) or Palantir’s 36% commercial growth vs. Datadog’s.

Benchmarks: S&P 500’s P/E ~25. PLTR’s premium needs justification.

Sector Norms: Tech P/Es (50–100) dwarf staples (15–25).

6. Look for Red Flags

Declining Revenue: Growth slowing (not PLTR’s issue).

Rising Debt: High interest costs in 2025’s rate environment.

Negative Cash Flow: Burning cash with no profit path.

Accounting Tricks: Net income > cash flow suggests fudging.

Where to Find Statements

SEC EDGAR: Free 10-K (annual), 10-Q (quarterly) filings for PLTR, etc.

Company Websites: Investor Relations section (Palantir’s site has them).

Platforms: Yahoo Finance, Bloomberg, or brokerages summarize key metrics.

PLTR Tip: Check its latest 10-Q (Q1 2025, due ~May) for tariff impacts.

Applying to PLTR ($74.01)

Income Statement: 20–29% revenue growth, 36% commercial surge—bullish. But low EPS, high P/E (400+) mean it’s priced for perfection.

Balance Sheet: Likely low debt, high cash (est. $3–5B). Supports $200B valuation but intangible-heavy (AI IP risks).

Cash Flow: $1.25B FCF is stellar—funds growth without dilution. Check R&D spend vs. results.

Verdict: PLTR’s strong but overvalued unless growth accelerates. Tariff fears (April 2025) hit less if DoD revenue (17–18%) holds.

Why It Matters

Valuation: Is PLTR’s $74.01 fair? High P/E says “wait for a dip” unless growth doubles.

Risk: Low debt/cash flow = safer than peers, but tariff slowdowns could cut commercial sales.

Decisions: Buy PLTR for growth, but pair with value (KO) if 400+ P/E scares you.

Analyzing financials cuts through hype—PLTR’s AI story needs numbers to back it. Start with revenue trends, check debt, and watch cash flow.