Value investing · Course 23 of 39 · Reading a business
Building a model that balances
One real company, eight steps, and a linked set of statements that balance. A model is an argument made arithmetic, and this course never produces a price.
The valuation courses discount cash flows without ever building the cash flows. That gap is deliberate and it is also the largest one in the academy, because forecasting carries most of the real work in any valuation.
This course closes it. One company, Costco Wholesale Corporation, read from its annual report on Form 10-K for the fiscal year ended 31 August 2025, filed 2025-10-08 under accession 0000909832-25-000101. Eight steps, each producing a part of a model, each computed from figures in that filing. It is chosen because its revenue has a physical driver a reader can count, because its membership fee is disclosed separately, and because its working capital does something unusual that a model makes visible. It is not chosen for any view on its shares.
One thing is said in the first lesson and again in the last. A model is an argument made arithmetic. It establishes what has to be true for a set of assumptions to produce a result, and it cannot tell you whether the assumptions are right. No lesson here produces a target price and none implies the model predicts anything.
You need bookkeeping-from-zero and financial-math for the mechanics, and
normalisation for the figure the forecast starts from.
What you will be able to do
Drive revenue from something physical. Split a cost base into the part that moves with volume and the part that does not. Schedule receivables, inventory and payables on days. Link what is spent on assets to what is charged for them. Handle the interest circularity honestly. Make the balance sheet balance, and say what it means when it will not. And find the one input the answer actually rests on.
What the figure means, not what yours is
Building a model that balances is 8 lessons on what a figure is actually measuring and where it stops being meaningful. What that figure currently reads for anything in your portfolio is a different question, and this course does not answer it: it computes nothing about a company you named.
Related
- Normalising the numbers is the course before this one, which produces the figure a model starts from.
- Scenarios and expected value takes a set of forecast cash flows as given, which is where this course hands over.
See our methodology for how the product reads a filing and what it refuses to compute.