You’ve probably heard someone say “this company’s earnings are great” or “that stock is cheap right now” and found yourself unable to explain why. Company analysis can feel intimidating, but once you know how to read a few key numbers, you can judge for yourself whether a company is making good money and whether its current stock price is expensive or cheap. We’ll walk through the basics step by step, working through the numbers with a hypothetical company.
The difference between charts and company analysis
A chart only shows how the price has moved in the past — it doesn’t tell you whether the company is actually making good money. Company analysis means looking past appearances at the company’s real income and assets.
Why does this matter?
You can’t judge someone’s bank balance just by looking at their clothes. In the same way, judging whether a company is sound just by looking at its stock chart is risky. Company analysis is less like looking at someone’s outfit and more like checking their actual income and what they truly own.
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Profitability Metrics — How Much Is the Company Earning
What is EPS
Earnings Per Share (EPS) is net income divided by the number of shares outstanding — it represents the portion of profit earned by a single share.
1How to Calculate and Interpret EPS Earnings Per Share
For example, if a company earned 10 billion won in a year and has 10 million shares outstanding, its EPS is 1,000 won. Does a higher EPS always mean better? Not necessarily. Larger companies naturally tend to have larger net income, so what matters isn’t the EPS figure itself but whether it has grown compared to last year and how it compares to the industry average.
Example calculation
10 billion won ÷ 10 million shares = 1,000 won
Net income ÷ Shares outstanding
What is ROE
Return on Equity (ROE) is net income divided by shareholders’ equity — a metric showing how much profit the company generated from the equity shareholders have invested.
2Capital Efficiency Through ROE Return On Equity
This is famously one of Warren Buffett’s favorite metrics. A company with an ROE consistently above 15% is often considered high quality. That said, some companies artificially inflate ROE by taking on heavy debt, so it should be checked alongside the debt ratio, which we’ll cover later.
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Valuation Metrics — Is It Expensive or Cheap Right Now
What is PER
The Price-to-Earnings Ratio (PER) is the stock price divided by EPS. An easy way to think about it: if you bought the entire company today, how many years would it take to recoup your investment at its current earnings rate?
Things to Watch for When Interpreting PER
If the stock price is 20,000 won and EPS is 1,000 won, the PER is 20x. People often say a low PER means undervalued and a high PER means overvalued, but that’s not always true. Fast-growing companies often justify a high PER, while companies in declining industries often have a low PER for good reason.
PER only makes sense when compared among companies in the same industry. That’s why you shouldn’t compare a semiconductor company’s PER to a bank’s.
What is PBR
The Price-to-Book Ratio (PBR) is the stock price divided by book value per share (BPS). It compares the current stock price to what shareholders would receive if the company shut down today and liquidated all its assets.
Things to Watch for When Interpreting PBR
A PBR below 1 means the stock is trading below the value of the company’s assets. That may look appealing at first glance, but in many cases the market has priced it low because the company keeps posting losses, so it needs to be checked alongside other metrics.
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How to Read the Three Financial Statements
Financial statements come in three main types, each showing something different. Think of them as the company’s health checkup.
1Income Statement
In short, the income statement shows how much the company earned. It works by subtracting costs from revenue one by one, so you can follow the flow down to what’s left at the end.
The key figure here is operating profit. Net income might look good simply because of a one-off gain, like selling real estate, but operating profit reflects money earned from the core business, so it shows the company’s true performance.
2Balance Sheet
The balance sheet shows what the company owns and what it owes. Assets = Liabilities + Equity. Subtract what the company owes (liabilities) from what it owns (assets), and what remains — equity — genuinely belongs to the company.
What is the debt ratio
The debt ratio is total liabilities divided by total equity — it shows how much debt a company carries relative to its own capital. Generally, a ratio above 200% is seen as a signal to watch financial stability closely.
3Cash Flow Statement
The cash flow statement shows whether money actually came in, and it’s the part beginners most often miss. Some companies show a profit on paper yet struggle because the cash never arrives. If a company sold goods but hasn’t been paid yet (a receivable), it counts as revenue on the income statement even though there’s no cash in the bank.
Why does this matter?
Check whether operating cash flow is consistently positive. If net income is positive but operating cash flow keeps coming in negative, that’s a warning sign. Comparing net income to actual cash flow this way to verify whether profit is genuine is commonly called checking the “quality of earnings.” If net income and operating cash flow are similar, or if the latter is larger, earnings quality is generally considered good.
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A Real Example — Working Through the Numbers with a Hypothetical Company
Looking at Hanbit Electronics Co.
Theory alone can be hard to picture, so let’s work through the numbers with a hypothetical company, Hanbit Electronics Co. We’ll first look at its basic information and financial summary, then calculate each of the metrics we covered earlier.
EPS = 7.5 billion won ÷ 5,000,000 shares = 1,500 won — This means each share earned 1,500 won this year.
PER = 30,000 won ÷ 1,500 won = 20x — If the industry average PER is 15x, this stock is trading at a relatively expensive level.
BPS = 60 billion won ÷ 5,000,000 shares = 12,000 won, PBR = 30,000 won ÷ 12,000 won = 2.5x — The stock is trading at 2.5 times what shareholders would receive if the company were liquidated.
ROE = 7.5 billion won ÷ 60 billion won × 100 = 12.5% — This is a much higher level of capital efficiency than a typical bank deposit rate.
Debt ratio = 40 billion won ÷ 60 billion won × 100 = 66.7% — This is a stable level, well below the 200% threshold.
Quality of earnings: Net income of 7.5 billion won < Operating cash flow of 9 billion won — This is a good sign that profits are actually coming in as real cash.
Overall Interpretation
With an ROE of 12.5% and a debt ratio of 66.7%, Hanbit Electronics is financially sound and its earnings quality isn’t bad either, but its PER of 20x is somewhat expensive compared to the industry average of 15x. In cases like this, it’s worth digging further into why the market is giving the company a premium — growth prospects, expectations around new business ventures, and so on.
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Where to Check These Metrics
If you want to practice this example with a real company, you don’t have to calculate everything yourself from DART filings. There are two approaches depending on your purpose.
A. When You Want a Quick Check
Sites like investing.com, stockanalysis.com, and Naver Pay Securities already have EPS, PER, PBR, and ROE calculated for you. Just search the ticker or company name and you can check it instantly — by far the most convenient option.
B. When You Want to Verify Properly
DART (Korea’s official electronic disclosure system) shows the original source behind those calculated numbers — the actual financial statements. Details that summary sites tend to omit, like footnotes or one-off gains and losses, can only be confirmed in the original filings.
How to Find the Original Financial Statements on DART
If you’re curious where the numbers you saw on investing.com or stockanalysis.com actually come from, follow these steps to check DART directly.
Go to DART (dart.fss.or.kr) — Type the name of the company you’re interested in into the search bar at the top.
Click the latest annual or quarterly report — Select the most recently filed report.
Go to the “Financial Information” section — In the table of contents, look for the income statement, balance sheet, and cash flow statement.
Compare against the numbers on summary sites — It’s good practice to compare the metrics you saw on investing.com, stockanalysis.com, or Naver Pay Securities with the values you calculated yourself, as a way to verify them.
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Numbers Alone Aren’t Enough — Qualitative Analysis Matters Too
All the metrics we’ve covered are numerical summaries of past results. But in real markets, stock prices often fall even when the metrics look good, or rise even when the metrics look middling. That’s why you also need to look at the story behind the numbers — the qualitative factors.
This Actually Happens
Sometimes a company’s stock price drops even after it reports earnings that beat market expectations. This is often because the good results were already priced in, or because concerns about next quarter’s guidance weighed more heavily. In other words, this shows that stock prices react to changes in future expectations, not to past results.
Position Within the Industry
Check whether the company is the industry leader or a latecomer.Is the industry itself growing or stagnant?
Competitive Advantage
Check whether the company has technology, brand strength, or patents that competitors can’t easily replicate.Can customers easily switch to a competitor’s product?
Recent Developments
Check recent disclosures such as new business ventures, major investments, or lawsuits.What guidance did the company give for next quarter’s results?
Metrics show the past; qualitative analysis shows what’s ahead. You need both to see the full picture.
SUMMARY
A Minimum Checklist for Beginners
Key Formulas at a Glance
Metric
Formula
Meaning
EPS
Net income ÷ Shares outstanding
Profit earned per share
PER
Stock price ÷ EPS
Stock price relative to earnings (must compare within industry)
PBR
Stock price ÷ BPS (book value per share)
Stock price relative to asset value
ROE
Net income ÷ Equity × 100
Return efficiency relative to equity
Debt ratio
Total liabilities ÷ Total equity × 100
Scale of debt relative to equity
Have revenue and operating profit grown over the past 3-4 years? — Check the growth trend first.
Where does the PER stand compared to the industry average? — Relative comparison matters more than the absolute number.
Has ROE consistently stayed in the double digits? — Check capital efficiency.
Is the debt ratio not excessively high? — Check financial stability.
Is operating cash flow similar to or greater than net income? — A large gap calls for caution.
Each metric is just one clue. Cross-checking multiple numbers together is the starting point for good company analysis.
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CONCLUSION
Closing Thoughts
You won’t master company analysis overnight. Just by learning metrics like EPS, PER, PBR, and ROE, along with the three financial statements — the income statement, balance sheet, and cash flow statement — you’ll build the foundation to judge things for yourself instead of simply following news headlines.
As with the Hanbit Electronics example we walked through today, the fastest way to learn is to pick a real company you’re interested in and run through the same calculations yourself. Financial statements are available for free on each company’s IR page or through DART.
The habit of asking why behind every number is ultimately what leads to good investment decisions.
This document was written for general investment education purposes and does not recommend buying or selling any specific stock. Last updated: July 2026
