 Welcome to the channel. This is Reliable Rudy. Today, we're going to go over an example earnings report for Apple's Q3 results. We're going to go more in-depth of what I'm looking for in an earnings report and also a simplified of How you could potentially look at an earnings report in this site for if it's good or bad? But first, I'm not a financial advisor. Everything in this video contains only my opinion and is for entertainment purposes only. So go into this earnings report. What am I going to be looking for? We're going to go on this everything my software and we're going to go into this Q3 report and decipher if anything's changed with our Calculation so these are the calculations that we use for Apple and We are going to see if we are going to tweak any of these numbers so Starting with price to earnings ratio. This is taking the price divided by earnings. So current price of Apple is sitting at 166 we'll call it So going into the earnings report their EPS earnings per share was a dollar 20 now They're nine months. So this taking the last three quarters in with this is four dollars and eighty six cents So I'm going to go and look at Analyst estimates for Apple now Apple is consistently beat on earnings consistently at this E is green That means they're beating on earnings. I'm going to put a little bit higher number We're going to go with a 1.4 We're going to add that into their last three quarters and then divide the stock price by that number so Looking at the four point eight six over the last three quarters We are going to add in one point four and we're looking at roughly six dollars and twenty five cents EPS Is what we can put into this calculation. So The current stock price is one sixty six. We're going to divide that by six point two five We get an EPS or eight a PE ratio of twenty six and a half roughly so looking at the pass of Apple Under their five-year average which is good to see But right in line with their current PE. Okay now for this PE I'd want to see revenue growth over 10% and I'd actually want to see cash flow growth and net income growth Around that 10% range as well So moving right along we're going to look at the return on invested capital Now I just typed in what is Apple's return on invest capital? I changed my filter to the past month and I found Right here that in Q3 Apple posted an ROIC return on best capital of 16% Now a little bit below their five-year average, but ultimately we're looking for over 9% return on invest capital So 16% Apple quarter in and quarter out they consistently Invest their money very well. So 16% is very good and Nothing wrong with that even though it is a decrease. They're still investing their money very well So moving right along we're gonna look at revenue growth. So we're gonna go to the financials We're gonna look at total net sales and we're gonna look at the year over year growth right here I can see this isn't at that 10% range that I'd like to be seeing and as I stated before I was expecting a little bit lower revenue now I can see there is still some growth here. So that is that is good to see but we're gonna see you exactly what that growth is So I'm gonna take total net sales divided by last year's net sales So 82959 divided by 81434 Now you see their revenue growth year over year is 1.8% okay Little bit lower, but we still have a lot of this earnings report to go through so nothing to really determine here But going to the stock animal rights or tool my job is to be conservative I'm using 5 to 10% revenue growth here and this is over a 10-year analysis So a little bit on the lower side, but in high inflationary times. There is higher cost of cost of product cost That is going to hurt their profit margins So that is going to be the next thing that we look at we look we're going to look at the profit margins and gross margins of the company Revenue growth, you know, there still is revenue growth So it is good that they did not decrease in revenue revenue. So there's positives and negatives with that So going to gross margins or gross margins here today is 43% We're gonna go see if that has changed it off. So I'm going to take gross margin divided by total net sales So gross margins thirty five eight eight five divided by total net sales eight two nine five nine Okay, so right in line with that 43% nothing's changed right there now profit margin We're going to take net income divided by Total net sales so net income is 19 442 Right there divided by eight two nine five nine Now you can see their profit margin is 23% we go back to the software I can see their year-to-day profit margin is 26% So that's 3% lower 300 basis points lower on profit margins looking at my analysis on on the company That's right in my middle assumptions at that 23% Okay That that there's there's nothing that I see right there that would make me want to change these numbers going on Into the future unless there was something that they had said where they're expecting in forward guidance Where they're expecting margins to increase, but they do not present any of that So we're going to keep that the same as of right now so Moving right along the next on our list is net income growth. So go back to the report I can see year over year. This is a decrease in revenue now if I wanted to see what this Decrease was you can calculate that but I'm I'm very interested in this decrease in revenue because they increase sales But their net income decreased now This is a little bit alarming and could be taken as a red flag, but we're not going to jump to conclusions here But going to our current PE for a PE of 26. I want to see their net income growing I want to see their revenue growing and I want to see their free cash flow growing So something to monitor there for sure So shares outstanding is our next pillar. So we go to the financials We're going to shares used in computing earnings per share. This shows their total shares outstanding Now last year in June This was their total shares and this is their current share So we're going to take last year shares divided by our current shares So see what rate they're buying back these shares So we're going to take 16 6 2 9 3 7 1 divided by 16 1 6 2 9 4 5 Let me see they're buying back their shares year over year at a 2.8 percent rate now looking at Apple's five year The rate that they're buying back shares on a five-year basis is 22 percent So 2.8 percent is drastically lower and like I said Apple is very good at investing their money. They know what they're doing we're actually going to go into the income statement and look at the previous quarters and Look at the rate that they've been buying back shares. So let's Put this on the last four quarters right here and I can see aggressively buying shares aggressively buying shares and now Even from this year they that's still a decent rate of buying back shares But from sixteen point two eight billion to only sixteen point one eight billion The amount that they're buying that back is decreasing a little bit So that is definitely something to monitor But as I mentioned we want the company even though the company's buying back shares Are they buying back good shares did the company buy those shares down here on this dip? I do not know But if I think that the company is overpriced up here We do not want them spending a lot of capital. So even though these shares Decrease a lot at the rate that they're buying them If the company's overpriced, I don't want them spending a lot of their free cash flow focusing on buying back shares So I'm actually going to take the slowed rate of buying shares as a positive But also keep in mind that you don't want the company sitting on a ton of cash either because of high inflation The value of the dollar is depreciating year in and year out So if they're sitting on a bunch of cash, they're not using their money properly And they're actually hurting themselves and not maximizing their potential So positives and negatives in there, but ultimately they are buying back shares They're benefiting the shareholders of the company. That is a positive now long-term liabilities now when looking at an earnings report sometimes it is going to be very hard to track this because The companies aren't going to post their total long-term liabilities in their financials They're just going to show current liabilities and total liabilities Now out of these total liabilities how much of this is long-term. I Cannot decipher in right here. So this is why I kind of wait for the software to get updated That way I can go into this balance sheet and see their total long-term liabilities But here we are here is their last quarter earnings report that is updated I can see that their long-term liabilities is a hundred and fifty five billion So I could go and look at the the debt that they paid off But I'm just going to go off this hundred and fifty five billion and we're going to jump to the cash flow So we're going to jump to the cash flow and see what the cash flow is for Apple So all I did I typed in Apple Q3 free cash flow Now I like why charts for this because it shows every single quarter I can see exact number of cash flow that they that they posted So I can see on this quarter. They posted twenty point eight billion in free cash flow now calculating the year-over-year growth They had nineteen billion in free cash flow the year before so pretty solid growth right there actually Now if I were to calculate that I'd take twenty point seven nine divided by nineteen I can see the growth of their free cash flow year-over-year was nine point four percent So that is definitely a positive right there that kind of lines in more of what I'd be looking for For the price to earnings ratio But then again you look back at that and you say okay the revenue didn't increase like this and The net income didn't increase increase like this where inside of here Did they get that increase in free cash flow? You can dive deeper into that, but that is Definitely a little bit more time-consuming But all in all their free cash flow increased by nine point four percent year-over-year. That is a very good increase So going back to their long-term liabilities if I'm taking that Their free cash flow is twenty point eight and multiply that by four We can expect roughly eighty three point two in that ballpark range for their year to date free cash flow So then I'm going to multiply that by five over the course of five years if they stay consistent with that free cash flow I can expect four hundred and sixteen billion dollars in free cash flow over the next five years We switch over back to the balance sheet go down to total long-term liabilities Does this cover their total long-term liabilities? And it clearly does Apple sitting on a very good in a very good position in terms of their balance sheet and in their debt ratio now I could also go and look at their current ratio Which basically just takes their total assets divided by their total Long-term liabilities or total liabilities to get a current ratio You want that current ratio to be higher than one in this scenario their total assets is Larger than their total liabilities. So the current ratio is going to be Solid that means they're going to have a positive shareholders equity. That is the difference right there 67.4 billion so a couple of things that I was looking at in there and I would say that the free cash flow and the debt levels for Apple is very solid nothing's going to change in there and Of course the free cash flow is growing So I'm not surprised that this number is a little bit lower than this and I'm curious to see When the software updates what these are currently sitting at but that is an example of how I would briefly go through an earnings report Now you can see other types of stuff go in depth to their cash flow statements and see if they had any acquisitions right here it does not show their acquisitions, but in The software I can see their acquisitions that if they were making acquisitions So here's their acquisitions the previous two quarters no acquisitions So that's beautiful and to see that free cash flow increasing like this Pretty solid as well, but that is going to complete this video. I hope you got a better understanding of how I like to read earnings reports and I hope it's you benefit from it as well and I will see you guys on the next video