Plain English
Start with a question you can investigate
Researching a stock means examining a claim about a business and the expectations attached to its shares. It is different from collecting favourable facts. A practical starting question is: what would have to remain true for this explanation of the company to make sense? The answer creates a list of things to check, rather than a score that tells someone what to buy.
Use four columns in a research note: claim, evidence, assumption and unresolved question. A reported sales figure belongs under evidence with a reporting period and source. A future sales number is an estimate. The belief that customers will keep renewing is an assumption until supported by appropriate information. Labelling these categories makes disagreement easier to locate.
Worked example
Follow one fictional company
Consider Alder Instruments, a fictional supplier of laboratory equipment and servicing. Its invented annual report describes both equipment sales and service contracts. The initial claim is that servicing makes revenue more recurring. That is a reasonable question to investigate, but the existence of a service business does not establish that all service revenue is contracted or durable.
First, identify customers, products and payment arrangements. Then inspect the segment discussion and revenue note for the split between equipment and service work. Record whether the company supplies renewal information. In this example it does not. The correct note is “renewal evidence unavailable”, not an invented renewal rate based on the reassuring word servicing.
Next, connect the income statement to cash flow and the balance sheet. Suppose the fictional report says receivables grew faster than sales. That observation raises a collection question; it does not by itself prove bad debts. Check payment terms, timing and any acquisition effects before choosing an explanation. Existing financial-statement and cash-flow guides provide the detailed mechanics.
| Business claim |
Service work may make revenue more recurring |
| Evidence to locate |
Revenue note, contract terms and segment discussion |
| Assumption to test |
Customers renew and pay under the stated terms |
| Unresolved question |
No renewal measure is disclosed |
Applying the Checklist
Turn the checklist into a reusable note
After understanding the business, write down the inputs behind the valuation discussion. Identify the cash flows or earnings being used, their period and the assumptions connecting them to a price. A quoted valuation multiple does not explain why those inputs are comparable. Keep any scenario calculation separate from the evidence that motivated it.
A reusable checklist asks six questions: What does the company sell? Where is the supporting disclosure? How do profit, cash and financing connect? What expectations enter the valuation? What evidence challenges the explanation? What remains unresolved, and which future disclosure could clarify it? These are prompts for investigation, not mandatory scoring weights.
Finish the Alder note by keeping both the possible resilience of service revenue and the open questions about renewals and collections. A clear result can be “the recurring-revenue claim is only partly supported”. That conclusion is more informative than forcing every observation into a confident overall verdict. Preserve the source version so another reader can retrace the reasoning.
Limits and Assumptions
Recognise the limits of a checklist
For US reporting companies, the SEC’s 10-K guide explains where business descriptions, risks, management discussion and financial statements appear. Those filing labels are US conventions; companies elsewhere use other reporting frameworks. Read the actual scope and reporting basis of each document. An official filing is a primary source for what was reported, not a guarantee that every estimate will prove accurate.
A checklist can miss an unfamiliar risk or overweight information that is easy to obtain. Industry knowledge and careful reading still matter. Neither a completed worksheet nor a large collection of links establishes investment suitability, accuracy of future estimates or better returns. The method’s purpose is to make the argument inspectable.
Common mistake
Do not confuse completion with confidence
A common mistake is ticking every box after finding one relevant sentence. Evidence should address the particular claim: a service offering is not a renewal statistic, and reported profit is not cash received. Mark missing information explicitly. Revisit the question when new evidence arrives rather than silently replacing an uncertain assumption with a fact.
Self-check
Check your understanding
Does a service business prove recurring revenue?
No. Contract terms, renewals and customer behaviour matter. The example leaves renewal evidence unresolved.
Where should next year’s revenue forecast appear?
Under estimates, with its assumptions and date, rather than among reported historical facts.
What is a useful outcome when evidence is incomplete?
A bounded conclusion identifying the supported claim, the remaining uncertainty and the disclosure that could help resolve it.
Optional workflow context
A connection to Strata Research
Strata Research organises company research into reports. The evidence checklist above can also be used independently with source documents.
Strata Research
Disclaimer
Educational Use Only
This article is for information and financial education only. Examples are hypothetical and are not personalised investment advice or recommendations to buy, sell or hold a security.
